trading platforms

Through a Dangerous Door

photo shows a rusty key in a rusty keyhole on a wooden door

Life in the 21st century is more connected and accessible than ever before. The Internet has brought whole new worlds of opportunity that would have been all but unimaginable before.

New opportunities have also created new pitfalls. Online stockbrokers have opened new doors for small-time traders, racing to cut commissions and expand access to trading instruments—even ever riskier ones.

Traditionally, trading features such as derivatives and margin trading were reserved for experienced investors who had money to lose. New online trading platforms have been pushing down the barriers to entry, allowing traders with just a few thousand dollars to their name to make heavily-leveraged speculative bets.

Our investment philosophy centers on traditional equity investing. We believe in owning pieces of real companies that have physical property and actual products. This provides no guarantees for us; equity investments are considered volatile, and they risk loss if a company disappears from the map.

Even so, these risks are small potatoes compared to what investors may get themselves into when they start playing around with complicated investment vehicles. Derivative investments can very easily be wiped out, and margin traders may find themselves owing more money than they put in to begin with. Traders beware!

At some point, it seems frankly irresponsible to turn inexperienced traders loose with such dangerous financial instruments. (In June, tragedy followed when a young trader misread his online trading statement and thought he was $700,000 in debt.) Online platforms have opened some doors that would have been best left closed.

Our goal here at 228Main.com is to make investing more accessible, more transparent, and more understandable for our clients. Part of that mission is making sure that we are not steering clients into inappropriate investments, a protection that do-it-yourselfers trading online lack.

We do not believe our role as advisors is to play “high priest” and tell you that we cannot be bothered to explain things to laypeople: we want to lay everything out on the table and make sure that our clients understand what they are getting into.

Clients, if you have any questions or concerns please call or email us.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Stock investing includes risks, including fluctuating prices and loss of principal.


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Free Lunch?

© Can Stock Photo / angelo

A few investment institutions, including those which maintain accounts for investment advisors, have gone to zero commissions on stock transactions. We are reminded of the old saying, “There is no such thing as a free lunch.” Of course, every ongoing business collects every dime of its costs from customers, one way or another.

We are reminded that the warmest apartment house on a cold day is the one where utilities are not separately metered. A resident might say “The rent is high, but the heat is free.” In truth, the landlord is getting the cost of the heat out of the tenants. And, more heat gets used because of the illusion that it is free.

Investors have benefited mightily from competition in financial services through the years. Lower costs and improved services and choice are good things. This latest step, however, looks to be a step backward. Some observers believe that zero-commission trading will lead to more trading, just like the apartment house that uses more heat.

We favor pricing mechanisms that have customers paying for the services they use. This is the fairest way to allocate the costs of anything. Nobody believes that maintaining the infrastructure and expertise to handle securities trading, account for it, and deliver services to the investor is free. Everybody knows those costs will be paid somehow.

As fundamental, long term value-oriented investors with relatively low turnover, we would hate to be subsidizing rapid-fire traders who benefit from zero commissions. Clients, we will be monitoring developments closely, seeking to maintain sound economics for your business and ours.

If you would like to talk about this or anything else, please email us or call.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.