Evaluation of Online Trading & DRIP - Essay Example

04/27/2016

“Making a wise decision when choosing the best trading site can return substantial amounts of cash to your pocket that could otherwise disappear in fees and commissions, so it is worth knowing what you want before selecting a TRADING PLATFORM.” As mentioned in article published by (Advisor HQ).

Three best online trading companies are TD Ameritrad, E*Trade and Trade king which will be evaluated herein. The main influential factors in selecting the online trading brokerage are

• Cost per Trade
• Margin Rates
• Min Initial deposit
• Maintenance fee
• Current promo for new account

In order to determine which the best online trading brokerage is, comparison will be required against each influential factors for of the three listed trading sites. The table below shows the draft extracted information from the three trading sites against the factors;

TD Ameritrades

E*Trade

Trade king

Cost Per Trade

$9.99

$6.99-$9.99

$4.99

Margin Rates (on average)

8.4%

7.74%

7.5%

Min Initial deposit

None ($20 margin account)

$500 ($20000 margin account)

None ($20 margin account)

Maintenance Fee

None

Current promo for new account

Trade commission free for 60 days + receive up to $600

Trade commission free for 60 days + receive up to $600

$150 account transfer reimbursement & Refer a Friend Awards ($50 for each friend)

TD Ameritrades is fast and powerful platform and appealing for the beginners who have can open there accounts with no minimum deposit requirements. Comparative to the other brokerage firms its cost per trade and marginal rates are high. In audience Ranking TD Ameritrades are considered powerful but flexible enough for everyone. E Trade in Comparison to TD Ameritardes does not vary much but in terms of minimum deposit requirements on marginal account. The minimum Initial deposit requirement is of $500 with $20,000 marginal account which means that the investor opening account in these terms has to keep up the account balance up to $20,000. Its margin rates on average are low and cost per trade on average is around $8.2. The firm provides services that cover stocks, ETFs, mutual funds, bonds and fixed income, international investing, options, and futures. E Trade is specifically designed for individual investors, traders and beginners. The firm is also ranked as one of the best in research context and for the beginners who have less or no knowledge can have benefit of having expert advises on managing portfolio. It has 30+ branches across the USA with 24 hour customer service.“As with most brokers, E*Trade's margin rates vary with the size of the account – ranging from "base minus 0.25%" for the largest accounts to "base plus 4.3%" for the largest.

International stock commissions vary with the exchange in question (C$19.99 for Canadian stocks, for instance), and additional fees and charges can apply, as well as currency exchange fees.” As stated by (Simpson). Trade King Cost per trade is significantly low in comparison to the other two. The firm is best fit to serious traders who aim to do daily trading and in large volumes. Its minimum account opening deposit is zero but firm charge $50 inactivity fee which is charged if no trade is done from account for the 365 days. The firm’s customer service is ranked as one and it allows interacting with fellow investors and sharing the experiences and helping in self-educating by interaction. Trade King currently operates under two branches with its helpline only restricted to office hours. This means that for beginners it will be not well suited as they cannot be entertained all the time.

Selecting the best fit online trading investor need to decide whether it desire to have cheapest option or to have a full suite of advance. For beginners the best fit will be the with no minimum deposits, easy to use and 24 hour helpline availability and for the serious traders fees and cost structure is the only thing that matters along with advance trading tools the firms offering and flexibility in trading.

DIPs/DRIPs: “A DRIP is one type of direct investment plan (DIP). Instead of buying shares on the stock market, you purchase shares directly from the company on a regular basis. Dividends automatically go toward purchasing additional shares, and in many plans you can buy additional shares outside of the dividend-funded purchase, either as a one-time purchase or on a regular basis.” As stated by (Carrel).

“As on 12/31/2015 eight of 142 companies have paid higher dividends and currently offer a No- Fee DRIP” as stated in David's spread sheet. Among those, first 3 ranked are Vectren Corp VVC with its share price $42.02, Emerson Electric EMR @ $47.30, American states water AWR $40.5. Under DRIP scheme an investor can start with the minimal purchase of company stock at the current Market value directly from the company. Once the dividend gets due investor will not get cash instead the dividend amount will be reinvested in the organization by purchase of more shares increasing the capital growth. Such schemes are for investors who are seeking for long term investment and capital growth.

Vectren Corp is an energy holding company and currently it is offering 2,000,000 common share stocks under DRIP program. Its diluted earnings per share has been showing upward trend from past three years. Currently its EPS (Basic) is $2.39. The ratio of its common equity over total asset is 31% and its total asset growth is 4.80%.

The Emerson Electric Company is an American multinational corporation headquartered in Ferguson, Missouri, United States. Company EPS is $4.02 which is showing an upward trend. Gross income is showing downward trend. Its Asset Total Growth is also in negative in last financial year i.e -6.80% with common equity over total asset 34.5%age. %increase in dividend by year is 6% and dividend paid per share in 2014 is $1.76

American states water is an American water and electricity utility company. Its gross income is negative -6.06% in financial year 2015 with earning per share $1.61. Total Asset growth is also in negative i.e 2.15% and Common equity over total asset is 34.5%.

All the three companies offer DRIP under the following details;

Standard Requirement

Ventren Corp

Emerson Electricity Corp

American States Water

Initial Investment

$500

$250

$500

Brokerage Cost

Nill

Nill

Account setup Fee $10/-

Schemes

Partial/full reinvestment of Dividend and/or Voluntarily cash payments

Dividend Re investment and/or Voluntarily cash Payments

Dividend Re investment and/or Voluntarily cash Payments

OCP min/max

$25/- - $100,000/-

$25/- - $100,000/-

&100/- - $20,000/-

Opting out of scheme cost

Service Fee $10 and $0.35 per share

Not disclosed

$15/-

This is the current offering of DRIP schemes from the listed three organizations. Any US citizen can opt for the scheme with direct purchase from company administrator responsible for operating this scheme. No brokerage cost will be borne by investment and in case of Vectren Corp if any incurred the company will be liable to pay back the investors.

Emerson Electricity scheme with respect to standard requirement is more attractive as its minimum investment requirement is low comparative to other two. In regards to Flexibility in the schemes Ventren Corp is best fit where reinvestment of dividend and to what extends is purely the investor decision.