Online Trading. (Business Essays)

Online Trading. (Business Essays)The industry chosen for our project is the online trading business. Our analysis will focus on the following three web sites: TD Waterhouse & Ameritrade, E*Trade Financial, and TradeStation Securities.
TDAmeritradeThe home page for TD Ameritrade is minimal and simplistic. The webpage has a caption on that reads, “TD Ameritrade ranked #1 Online Broker, Barron’s.” The quote must inspire people to invest on their own through online services, but it comes across a bit trite. Along on section for clients to input a user ID / Account number and password is available. Approximately one year ago TD Waterhouse and Ameritrade merged to become TD Ameritrade and are now using one site to support all users. Navigating the pages is easy through tabs at the top which include; Portfolios & Accounts, Trade, Research & Ideas, Trading Tools, Planning & Retirement, and Client Services. The sub-tabs on the home page allow users to find out more about TD Ameritrade, open an account, pricing, account types, ways to fund, FAQs, and Apex. Three large sections in the middle of the page link the user to more information on getting up to $300 with a new account, view competitive CD rates, and information on transferring from another broker to TD Ameritrade. The website contains a graphic representation of the stock market and five minute delay quotes on the DJIA, NASDAQ, and S&P 500 indexes provided by Reuters. Towards the bottom, users can enter their zip code to locate the nearest branch (tdameritrade, 2007).
TDAmeritrade.com feels as if the website is designed for users who are already familiar with online trading and investment options. The look is sleek and sophisticated with easy to find navigation links.
E*Trade FinancialThe E*Trade Financial home page has a nice layout and is easy to peruse. The first attention grabber is the advertisement to open an E*Trade account with a sentence that says “It’s Banking on Steroids” and another advertisement that says “Pure Trading Power.” The middle of the web page an announcement opens up with “A $2.5 Billion Vote of Confidence,” E*Trade Financial announces a strategic transaction with one of the worlds leading investment firms. At the very top of the page is a search engine for both quotes and general information on the site. A section for users to enter their ID and password and log on securely is also available. Several tabs at the top left of the page allow consumers to navigate through Trading & Portfolios; Tools & Research; Quotes & Research; Mutual Funds, ETFs & Bonds; Retirement & Advise; Banking & Credit Cards; Mortgage & Home Equity Loans; and Pricing & Rates.
E*Trade’s home page allows users to open accounts, view products and services, access forms and applications, learn about corporate services, and contact the company through email. Quick links allows the person to navigate and get more information on trading, investing, banking, and home finance. An information box on the lower left side of the screen shows the stock market information on a 20-minute delay and includes the NASDAQ, DJIA, and S&P 500 indexes. Just to the right of the stock market box is information on lending rates and includes today’s rates on 30-year fixed mortgages, E*Trade Bank, and E*Trade Brokerage Services. (etrade, 2007).
Overall, Etrade.com is a well-designed home page with links that make sense to both the serious investor and to the person interested in learning more about investing online.
TradeStation SecuritiesThe TradeStation Securities home page jumps out like a pop-up ad where a huge picture that states “Announcing 8.3 TradeStation Unleashes FOREX” The sub-title reads, “Discover the Power of Strategy Trading with TradeStation” (tradestation, 2007). The user might be confused as to whether this is a home page or an advertisement. The text goes on about all the wonderful features and benefits of using TradeStation, but it’s difficult to find where to go for more product-specific information. Another side banner advertisement features equities, options, and forex and a small “go” icon to compare rates. The tabs at the top navigate to Strategy Testing & Analysis, Automated Manual Trading, OptionStation Suite, Deep Discount Fees, and Support Center. Barely visible links at the top of the page leads to investor relations, client log in, site map, and contact us. At the bottom of the page Trade Station touts seven awards received in 2007 including best futures brokerage, best direct-access brokerage, best options analysis software, best direct-access futures brokerage, best professional platform, best institutional platform, and 4 stars from Barron’s (tradestation, 2007).
TradeStation’s home page is very busy and extremely confusing. The webpage has too much going on with graphics and text so that the user needs to scroll down to another page to read the whole page. The navigation keys are confusing and when selected, they continue with more wording than necessary. It appears by their awards that they offer an amazing service and are clearly targeting the online traders who are active and serious about their investments. Those who don’t necessarily understand about investing online will surely be confused by this website.
Online Trading Supply ChainThe electronic brokerage firms that have been chosen have radically changed the financial investment industry and the supply chain for the financial industry. The supply chain for investment firms such as TD Ameritrade, E-Trade, or TradeStation is simply the availability of investment securities, stocks or commodities. Two of these companies, E-Trade and TradeStation, were created with e-trading as the basis of their business model. TD Ameritrade was formed after the merger of two companies. Ameritrade was also formed with e-trading as the core of their business model. TD Waterhouse was a traditional brokerage firm. In 2006, the two companies merged to form TD Ameritrade.
Brick and MortarThe process in which the stock is offered to investors prior to the development of the Internet was generally through brokers calling investors via the telephone. Another common way was an actual storefront or office of a broker/dealer where individual investors could walk into an office and purchase new stocks directly. These offices were branch offices of a much larger firm like Merrill Lynch, Morgan Stanley, and Charles Schwab. The brokerage firms then depended on stockbrokers on the floor of an exchange to transact the deal. This process was time consuming and labor intensive. Once a customer placed an order to either buy or sell, up to two hours could elapse before the actual transaction was recorded. As a result of this time delay, orders were often not carried out because the window of opportunity had passed.
In order to help remedy the time delay of the actual transactions, triggers were implemented. A trigger is “An event, such as reaching a specified price target, that means an investor will make a specific trade” (InvestorWords, 2007). Triggers allowed a customer to set an upper or lower limit on a stock, bond or commodity and subsequently buy or sell at that price automatically, without the intervention of the brokerage firm. Triggers are still used in today’s e-business world.
In addition to the stocks, bonds, or commodities being required to be transacted through actual exchange floor transactions, the process of exchanging money within the investment firm was not always the most efficient. Often, a customer would have to write a check, which could take several days to clear both banks. To alleviate this problem, the investment firms instituted customer accounts where the investment firm would hold the funds of the customer until a transaction was placed.
E-TradingAs early as the 1970s, the move to conduct securities trading electronically began truly to evolve through the innovation of computers (NASD, 2007). With the advent of e-trading brokerage and investment firms changed the way the do business. Not only did the supply chain of buying stock, bonds and commodities change, but almost every aspect of the business was optimized to take advantage of the internet. With e-trading, computers replaced stock traders. No longer did brokerage firms need to depend on exchange buyers who worked the floor of the exchange. Now, transactions could be executed electronically, with very little human interaction. Large databases keep track of all buys and sells of all stocks, bonds and commodities and executed individual transactions automatically. By doing so, they bypass brokers charging fees and keeping execution costs lower.
The efficiency of the stock market has kept pace with developments in technology. Instead of the earlier years when an investor had to go through the process of purchasing through the method discussed earlier, investors can buy or sell stock themselves through online trading websites like Ameritrade, E-Trade, and TradeStation.
Today, if an investor wants to buy or sell a stock they can connect via the Internet to websites like Ameritrade, E-Trade, and TradeStation and log into their accounts via a secure network, open order execution screens to search for particular stocks and execute a trade at the best price. One problem with this accessibility is the tendency towards increased volatility within the stock market. As soon as market moving news like economic reports are reported and disseminated through television, emails, or Internet, investors can act immediately and sometimes excessively.
Triggers could still be used, but no longer held the importance as they did in the days of manual trading. Even the smallest investor can get current stock prices within 20 minutes of real-time. Some internet-based applications are still offering near-real-time stock quotes to consumers that are only seconds old. Most applications offered today have a 20 minute delay built in. This delay also helps alleviate any drastic markets swings. Most stock markets have instituted a halt trading policy that halts all trading if certain conditions are met. These policies are in effect because many computer programs will sell if a price falls below a certain threshold. The problem with the automation of this process is that without human intervention, the market could implode on itself, selling off all assets until they were worthless.
The supply chain in the stock market has become more efficient through the introduction of websites such as Ameritrade, E-Trade, and TradeStation. From the days in the past when an investor had to visit a branch office in order to invest in the stock market, they can accomplish the same task through the Internet and websites in a more efficient manner. Broker/dealers can also capture a larger share of the market offering access to their services through E-Business.
Marketing and Customer Service AnalysisIn order to succeed in the business world, an organization must have marketing as part of the life cycle of any product or service. Marketing is considered to be an integral part of any successful organization and with just reason. In the world of e-business this is no exception. For that reason, a marketing plan is a critical component to an overall business plan. A marketing plan should be part of the organization’s goals and promotion strategy. In order to achieve this success a combination of tools such as promotion, sales tactics, public relations, advertisement, and segmentation and target audience is necessary; this is commonly referred to as the marketing mix.
Marketing is typically found on the front-end of the sales cycle, and customer service is typically a function of post-sales. As with all components of a business cycle, both functions serve a defined purpose, and both functions complement and rely on the other. If a business is recognized as a quality customer service provider that customer service is often woven into the marketing strategy.
Good customer service is an essential part of a successful business. Consumers often choose one service or product versus another because the level of customer service is much higher. According to Businessline “Customer service is gaining new prominence since it may provide the most important, if not the only sustainable marketing edge” (Businessline, 1998). In terms of the three financial institutions analyzed in this paper, a necessary component for each site is that the customer finds all the information needed in order to stay current with technology in comparison with other sites that offer the same service.
TDAmeritrade, TradeStation and E-trade have all devoted a section of their website to customer service but all three provide customer service in different ways. TDAmeritrade has two different links that takes the customer to the customer service page. Upon entering the page an encouraging message tops the page that reads “We’re here for you” (TD Ameritrade, 2008). The page lists the several phone numbers available for different services as well as different numbers for members who speak different languages. At the bottom of the page the client can click on a link to view general questions, FAQ’s, and other services such as deposit status, promotions and transfer status. Overall this page is straightforward, simple and easy to read but somewhat cold and impersonal.
E-Trade has two different links on the main page for customer support as well as quick reference to their customer service number, online service center and finding the nearest branch. Upon entering the customer service page a list of all the FAQ’s also act as links to take the client to view the answer of the question selected. Some of the answers contain other new links that can take the customer to reviewing further information. The top of the page reads “Get help if you need it-seven days a week” (E*Trade, 2008). The message is not very eye-catching or encouraging. The same page also contains quick links to opening accounts, making transfers, 401k roll over, application status, finding forms and a link to view the entire customer service phone numbers available. The Contact Us tab neatly displays all the phone numbers available for all the different services they offer. Addresses fax numbers and e-mails are also listed. The customer service page for this site is nicely displayed, very resourceful and easy to read. All the quick links seem to eventually lead to the information or help needed.
TradeStation has only one very small link to the customer service page. The customer service page only lists phone numbers, fax numbers, e-mail addresses of where a customer might find support. Part of the menu on the left hand side is devoted to support, which lists different topics. The topics listed drop down into additional options, which are links to take the client to research it. Once it finally reaches the page desired the print is small and the answer is quite extensive. On the main page, another tab labeled support center can be found. This page is directed to a page with several neat looking pictures with hyperlinks welcomes the customer. Moving the mouse to the top of the picture a description of where that link will lead comes up. This page is very well developed, eye catching and easy to read. Unfortunately, this link is only available to active members of TradeStation. Basing it on the quality of the customer service page, TradeStation seems to care more about the service it provides to its existing customers rather than the service it provides to potential customers. This focus on existing customers may be part of their marketing strategy. Once you become a customer of TradeStation, you are taken care of.
An effective Customer Service web presence will always attempt to resolve the issue for the customer online. This will help the business save time and money, and should result in a more satisfied customer. For this reason, all three sites offer FAQ’s, forums, and various other helpful information in the hopes that the customer can resolve their question or issue online.
TDAmeritrade and E-trade do a good job at providing good customer service and having a resourceful website no matter who visits it. TradeStation is dedicated to giving the utmost service to their current members. All companies, regardless of the type of service or goods they sell, should spend resources in building a customer service portal that meets the needs and requests of the customers. “Good customer service becomes the glue that bonds your customers to your company” (Businessline, 1998)MarketingWith each of the three financial sites that have been chosen, marketing is a key component to their overall business strategy. Each site uses both electronic and traditional media to deliver the marketing messages.
TradeStation’s marketing message is to differentiate themselves from other online securities firms by touting their rules-based trading engine. The main focus is the ability for the consumer to manage his or her portfolio through automated triggers and rules, as opposed to the consumer being present to execute a transaction. No mention of customer service is made in their marketing messages, implying that customer service is not a way by which TradeStation will try to attract customers.
E-Trade uses a more customer-focused message in their marketing strategy. Their mission statement is “To create long term shareholder value through superior financial performance driven by the delivery of a diversified range of innovative, customer-focused financial products and services and supported by an operating culture based on the highest levels of teamwork, efficiency, and integrity” (E*Trade, 2008). This mission statement points to the importance of supporting the customer, and by using this as the mission statement, demonstrates the importance of that to all employees of E-Trade.
TD Ameritrade focuses on the individual investor. The marketing message emphasizes service and their ranking of the number one online broker by Barron’s. This emphasis on service and the individual investor is intended to make the customer feel safe in using their service. Many investors are placing their retirement funds in these online brokers, and they are much more conservative in their investment strategies than an individual who is using disposable income to play the market. By stating that they are both the number one broker and they are focused on the individual, they are attempting to bridge the gap between these two types of investors.
Legal, Ethical, and Regulatory IssuesThis section will discuss the legal, ethical, and regulatory issues as they relate to the online trading business. Each of these issues is unique in e-business as compared to the traditional brick and mortar counterparts of the business.
Legal IssuesBusinesses involved in e-commerce are faced with the same if not more legal issues as any other business; these issues include, but are not limited to: jurisdiction, contract, copyright issues, patent effects, and legitimacy. A contract is a legally binding agreement in which two parties commit to certain obligations in return for certain rights. In a B2B context this can range from a one page purchase order to a complex, multi-page trade level agreement. In terms of B2B contracts are essential because they allow business to operate at arms length. Because B2B business is usually repetitive, one contract can be used between those businesses without the need to negotiate a new contract for each transaction. Furthermore the standardized nature and the regular use of contracts means that many elements are stable enough to be implemented as components in a B2B system (Goodchild, 2000).
B2C contracts are a little different in the sense that a consumer is not necessarily a repeat customer or a repeat order. A consumer may visit a sight once and than a year later return to that site for another item therefore a contract cannot be made to cover several transactions. In a business to consumer relationship each transaction must be covered by a new contract. The business offers the consumer an obligation in return for certain rights and vice versa.
A copyright is a right granted by a government to the author of a literary or artistic work, and includes elements such as fair use exemption. E-commerce has made copyright and fair use exemption difficult to control. E-commerce allows the immediate transmission of exact digital copies of materials. In the case of business to business this can be considered a violation. For example when Napster provided a network used to trade music files that they had copied from CD’s this was considered a copyright violation.
In a B2C site the business process patent issue is probably more applicable than the copyright legal issue. This patent protects a specific set of procedures for conduction a particular business activity. Amazon.com and Priceline.com are both B2C sites. Amazon filed a patent on its one click purchasing method and Price line filed one to protect its name your own price system. Although these patents were filed the ability of these companies to enforce their rights under these patents is not yet clear.
There are many other legal and regulatory issues that affect B2B and B2C sites, trademark infringement, name changing and name stealing, protecting intellectual property, defamation, and advertising regulations as well as online crime and online warfare and terrorism. The point is there are many legal issues that could be addressed in this paper however to avoid redundancy we will focus on the most important aspect and that is that e-business must comply with all of the same laws that other businesses follow.
Regulatory IssuesFor all three companies that have been chosen, ETrade, TD Ameritrade and TradeStation, the regulatory issues are the same. The taxations structure of stock and securities is based on the amount of income that an investor earns throughout the year, and taxed at a rate of capital gains tax or dividend income, which is usually at a higher level than income tax. The taxable amount is based on net earnings, meaning profits less losses.
As the broker of the transactions, each online brokerage firm must report the amount of earnings or losses to the Internal Revenue Service. Using one of several forms, each investor is reported on using the Social Security number as an identifier. The Internal Revenue Service uses many forms for different reporting purposes. However, the most prevalent are the Form 1099-DIV, Form 5498, and Schedule D.
Ethical IssuesAll organizations have a duty to their clients and organizations with whom they make business with to act ethical. One of the greatest assets a person can have is their investments and organizations like ETrade, TD Ameritrade and TradeStation need to build and maintain customer trust by protecting the customer and by acting ethical. The investment organizations mentioned above maintain records of customers’ social security numbers, bank information, account information and personal information it is up to them to act according morally and legally right. ETrade has a 57 page code of professional conduct manual that is signed by every associate that joins their team (Etrade, 2007). The manual is available for any person to view and it ensures that every member in ETrade will act with the highest level of honesty and integrity. According to ETrade, the purpose of the manual is (Etrade, 2007). TDAmeritrade counts with more than just a promise to help the customer feel secure and confident that TDAmeritrade is an honest and ethical organization. The Asset Protection Guarantee will reimburse the customer if the customer loses money due unauthorized activity; leading-edge security software is a tool TDAmeritrade uses to safeguard the trading environment and the personal and financial assets of every customer (TDAmeritrade, 2007). TDAmeritrade does a great job at displaying the benefits of investing with them and proving to a potential customer how much they are willing to do to earn their trust. TradeStation although reputable, does not do a good job at making the customer feel at ease. TradeStation’s website does mention anything about a code of conduct or ethics, all it includes is warnings for the customer to be protected against threats. Sections of the website like “notice to online traders”, “online identity theft and security reminders”, “risks of acting trading”, “extended trading hours risk disclosure’, “margin disclosure statement”, “risk disclosure statement for security futures contracts” among others warn the investor of the potential risks he/she can face but do not offer any assistance in the event that this happens (Tradestation, 2007). Even though the financial services industry is heavily regulated, abiding by the law is not sufficient, a high degree of ethics, honesty and fairness is essential and TDAmeritrade is the website that better informs and claims to protect their customers.
Conclusion.
The three websites are uniquely different in their appeal to their respective target markets. TDAmeritrade appears to more of a middle-of-the-road investment site appealing to both new and established online traders. E*Trade is clearly targeting a mass market by making their site simple and extremely easy to navigate. TradeStation is definitely at the high-user end of the online investor spectrum. It assumes that site visitors already have a clear understanding of online investing and are looking to elevate themselves to the next level. All three are within the same industry; however, each has a specific approach to the intended audience, which is evident in their websites.
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