If online trading in 2005 was akin to vanilla ice cream, investors can now choose from 31 flavors. It’s a blessing and a curse. The sheer amount of information, tools and resources can make and individual investors as sophisticated as any professional investor, but wading through the various online offerings can be a daunting task. Even once you’ve found a site that is right for you, it may take many hours to truly grasp all the available options at your disposal. We’re here to help.

In Part II, of this series, we look at trading sites that are best-suited for basic investors. And in Part III, we’re looking at sites geared towards intermediate and advanced investors. In this introductory column, we’ll look at major changes that have altered the online trading landscape in 2010, and a look at possible changes coming in 2011 as well.

Recent Trends
A few clear themes have emerged this year that make online trading more appealing and useful than ever. First, a price war has broken out, and investors are reaping the profits. Trading commissions ranged from $8 to $20 a trade a few years ago. Nowadays, $8 is near the high end, and in some instances, trades can be made for just $2 to $3 -- or even for free -- for customers that meet minimum account balances or meet a quota of trades in a period.
Second, 2010 will go down as the year when online brokers finally acknowledged that there is a world beyond stocks. Nowadays, many firms offer an impressive array of tools that let you trade options, futures contracts, foreign stocks (on foreign exchanges) and a range of fixed income investments. The various players are staking claims to particular categories in a bid to differentiate themselves, though a few offer all of these investment paths on one platform.

Third, the worlds of investing and social media are colliding. Investors increasingly want to be part of a broader community where they can exchange ideas, track other’s portfolios, and receive instant alerts about activities among their peers. Twitter and Facebook are just starting to play a role at a few of these sites, and you can expect to see a lot more social media plug-ins on the major online trading sites in 2011. As an example, investors using tradeking.com can generate a twitter message when they complete a trade so their peers can track how and what they are doing (it will be interesting to see how this narcissism/voyeurism will be viewed five years from now).

Lastly, the industry is going mobile. Firms like E*Trade and Ameritrade were quick to develop sites geared towards smart phones like the iPhone in 2008 and 2009. Nowadays, all of the major sites are moving to tablet computers. There are already a half-dozen firms that developed robust applications for the iPad (such as real-time charting, live quotes, streaming CNBC video, etc.), and you can be sure that the upcoming slate of tablet computers from Blackberry, Samsung, Hewlett-Packard and others will have their own dedicated mobile platforms.

Looking Ahead to 2011
If 2010 was characterized by aggressive price wars and better use of technology, then 2011 heralds more of the same. We appear to be heading towards the magical $5 threshold for most trades, and the majority of online trading firms may feel compelled to move their commissions below that price in 2011 as they keep trying to poach customers from one another.

Moreover, the new year should bring another round of technological changes and the online brokers will need to keep up. For example, many TV sets next year will come equipped with web browsers. And the line between TV broadcasts and internet streams will further blur. Before long, you may be able to have live-streaming quotes that you choose scrolling across the bottom of your screen.

As investors increasingly gravitate towards less traditional investments such as commodities futures contracts, many online trading firms are beefing up their offerings in terms of investor education, tools and trade execution services. This trend is likely to deepen in 2011, especially if commodities and foreign stocks extend their strong 2010 performance into 2011.

2011 may also be the year that traditional brokerages and banks strike back. Merrill Lynch has already become an aggressive player in the discount online space through its Edge platform, and Merrill’s Wall Street peers are likely to follow suit in coming months. In addition, local banks are slowly waking up to the world of discounted trading. So look for your local bank to roll out more services and lower fees through their web sites.

To be sure, many of these changes seem to be geared towards more aggressive investors. For most of us, the current offerings are already so extensive, and the trading commissions are so reasonable, that it’s hard to see any need for these firms to further sweeten the pot.