This article comes from DR at The Dough Roller, a blog about how to make more money, spend less, and invest the rest.

As investors have become more and more comfortable trading stocks and options over the Internet, a number of online discount brokers have entered the market. Zecco was one of the first and best known for offering free stock trades. Today, there are many options for deep discount brokers. To give you an idea of what’s available, we’ve put together a list of seven brokers that offer stock trades for $7 or less.

As you evaluate these brokers, keep in mind two things. First, it is important to know what types of equities you plan to purchase. For example, if you plan to buy mutual funds, realize that not all discount brokers trade in mutual funds, and those that do don’t always offer a complete list of mutual funds to chose from. So know what you plan to invest in, and make sure the online broker you select offers those investments. Second, these brokers really do have feature-rich websites. They are easy to use and offer a lot of research and trading tools. You’ll also find instructional videos with most discount brokerage firms. You’ll likely find one that fits your investing style best, but fortunately you won’t have to sacrifice features with the available online brokers.

So with that, here are 7 brokers that offer stock trades for $7 or less:

1. Sogotrade

Sogotrade is relatively new to the world of discount brokers, and this is good news for investors. In an effort to win investors’ business, Sogotrade charges just $3 per trade for stocks. As far as I know, $3/trade is one of the cheapest online stock trading you’ll find. And when you open a new account, you get 100 free trades during the first 30 days your account is open, for a savings of up to $300. If you’d like more information, check out this review of Sogotrade.

2. Just2Trade

While $3 per trade is great, $2.50 is even better. And that’s exactly what Just2Trade charges. Whether you want to trade stocks or mutual funds, or limite, open or stop orders, the cost is $2.50. While Just2Trade does over online trading tools and resources, this is a no frills online discount broker. But if you are looking for rock bottom prices, Just2Trade is definitely worth considering.

3. OptionsHouse

With OptionsHouse, you can trade stocks, options or spreads. The cost to trade stocks is a flat $2.95. There are no maintenance fees or monthly minimums, either. According to OptionsHouse, it offers a professional-grade trading platform backed by PEAK6 Investments, one of the largest options trading firms in the world. It is from this platform that OptionsHouse offers an array of professional trading tools. For my money, OptionsHouse offers a good mix of low cost trades and a feature-rich trading site.

4. TradeKing

Trade King is another great low cost option, with stock trades costing $4.95. One of the big advantages offered by TradeKing is broker-assisted trades for not additional cost. Many other discount brokers charge up to $30 for an assisted trade. TradeKing has been ranked #1 in customer service by SmartMoney Magazine and Kiplinger’s. TradeKing also offers a Trader Network, which allows you to connect with other traders, share strategies and trading tips, and see the hottest trades of the day.

5. LowTrades

LowTrades charges $4.95 per stock trade, regardless of whether you place an open market order, limit order, or stop order. There is a $500 minimum to open an account ($2000 for margin accounts). While there is no minimum for a cash account, there is a monthly “trading desk fee” for accounts with less than $500 in equity.

6. Zecco

Zecco is well known for offer completely free trades. With Zecco, you can get 10 free trades a month if you maintain a balance of at least $25,000 or trade at least 25 times a month. And paid trades cost just $4.95. On top of that, the Zecco website is extremely easy to use, and it has a lot of educational videos to help investors use the site and become better at stock trading.

7. Scottrade

Scottrade rounds out our list of deep discount brokers. With Scottrade you get stock trades for $7 per trade Scottrade ranked well in Smart Money’s 2009 survey, and it offers a number of account types, including IRAs and other retirement accounts. Scottrade does not charge opening, closing, annual or custodian fees. And unlike many other online discount brokers, Scottrade has physical branches if you need to speak to a representative in person. The account minimum is just $500.

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Today I received an email from Prosper to notify me that they are entering a quiet period, as they register with the proper securities authorities for a secondary lending market. What is a secondary lending market? It is a market where you can buy and sell loans that have already been originated. This provides additional liquidity, as you are no longer bound to wait 36 months until maturity and you can sell loans before they complete the full term.

In a typical secondary market, the net present value of a loan depends on the expected future cash flows and a discount rate. The discount rate is the interest rate on the loan often with an additional risk premium. When interest rates fall, the net present value of existing loans will rise. This is because older loans were originated at higher rates and are more valuable. When interest rates rise, the net present value of existing loans falls since new loans can be originated at higher rates and provide greater cash flow.

I have a feeling that at least initially, the Prosper market will not behave like a typical secondary lending market. I think that either one of two things will happen:

1. People that regret having tied up their money for 36 months will put their loans up for sale. In desperation they may be willing to accept very low prices for the loans. This will present a great opportunity for investors to purchase higher yielding loans.
2. People will be greedy and attempt to sell their loans for much higher prices than they are worth. Investors will not bother buying them since they can just originate more attractive loans. It would be an illiquid market, very much like the broader credit markets are right now.

It will certainly be interesting to see exactly what happens. Perhaps neither will happen and the market will function in a relatively normal manner. I’m sure that Prosper will probably provide some tools to provide guidance to those selling loans to ensure some liquidity within the market. Prosper will want the market to be as liquid as possible, because they will very likely receive fees for sales within the secondary market.

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Yesterday the SEC and UK’s Financial Services Authority made very drastic moves by disallowing traders from shorting financial stocks.  Selling short is the practice of selling shares of securities that are not owned by the seller.  Shares are borrowed on margin, sold, and then purchased at a later date.  If the price is lower when the shares are repurchased, then the short seller makes a profit.  If the price is higher, the short seller suffers a loss.  I think that banning short selling on financial stocks is a really bad idea for two reasons:

1. It will undoubtedly cause a short squeeze (as we began to see yesterday with the Dow rising 400 points). A short squeeze takes place when there is a lot of open short interest (a lot of people shorting a stock) and the stock begins to rise.  As the stock rises, many short sellers buy back the stock to prevent or cap their losses.  With many short sellers buying back the stock, it increases the demand for the stock and a snowball effect takes place as the stock skyrockets.  Many short sellers will receive margin calls and will either have to increase the value of the assets in their account or be forced to buy back short positions at a loss.
2. It does absolutely nothing to solve the problems that are causing financial stocks to drop in the first place. Financial firms have seen their market value falling because of the difficulty they are facing in finding sources of capital.  The cost of borrowing for lenders and banks has increased due to the credit crunch.  Banning short selling on financial stocks does absolutely nothing to resolve the fundamental issues that have caused the market value of financial firms to fall.

The action taken by the U.S. and U.K. regulatory agencies are likely to cause more problems than they will solve.  It will only increase the volatility in the stock market as a short squeeze takes place and after the ban is lifted.  After the ban is lifted, we will likely see the financial stocks drop once again.  Why?  Because the underlying issues still exist and the market will value the price of those financial institutions accordingly.  The day traders are going to really have a field day as they buy up shares of financial stocks and subsequently short them after the ban is lifted.

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Before

After

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I’ve been lending on Prosper for a bit over 7 months now. I’ve seen quite a few loans move in and out of late status. I suppose some borrowers prefer to “optimize their cash flow” by allowing their loan payments to lapse a few days. This is just fine with me, as long as they eventually make the payments. Unfortunately, I also have some other borrowers that have allowed their payments to lapse more than just a few days and I currently have four loans in collections. Here’s a summary of my earnings on Prosper so far:

• Cash deposited into account: $2,500
• Earnings from referrals: $50
• Principal Loaned: $3,000 (includes reinvested principal received and referral bonuses invested)
• Principal Received: $376.45
• Interest Received: $219.78
• Late Fees Received: $0.70
• Servicing Fees Paid: -$10.23
• Collection Fees Paid: -$0.24
• Net Profit: $210.01

Now of course, there is a high probability that at least one of my four loans in collections is going to default if not all of them. The net principal balance for the four loans in collections is $191.61, so even if all four loans defaulted, taking into account my net profit I’m still ahead of the game by $18.40. That’s about a 0.74% total return so far or about 1.1% annualized. Although EricsCC and LendingStats have my estimated ROI much higher than that, I prefer to take a more conservative approach. Warren Buffett’s first rule of investing (and mine too) is don’t lose money. So far I think I’m doing well in that regard on Prosper.

I still think that Prosper is a good investment vehicle, and a good addition to any investment portfolio. As long as you can outpace your defaults with your average interest rates, you can make money investing in Prosper loans. Here are a few simple rules I try to stick by when I’m investing in prosper loans:

• Don’t invest in charity cases. I’m investing my money not giving it to charity. If you do lend to someone in a charity case, don’t get mad if and when you lose your money.
• Don’t invest in start-ups. Without proven results, investing in a start-up is more of a gamble than an investment.
• Don’t lend for working capital. If someone needs money for working capital it typically means they do not have the positive cash flow necessary to run their operation.
• Invest in those consolidating debt. These are my favorite kinds of loans, particularly if it will improve someone’s cash flow situation.
• Draw a line in the sand as far as your minimum interest rate. For example, if your target rate of return is 7%, then you shouldn’t invest in loans at a rate any lower than 7%.

I haven’t always followed these rules, but it is because I hadn’t yet formulated them in my mind. If ever I do break any of the rules now, I need a very good reason for doing so. If you’re dealing with a small portfolio (less than 100 loans), it’s easy to stick to these rules. If you’re dealing with a larger amount of money and a higher number of loans, you’ll probably want to use a portfolio plan. Either way, you should try to be as consistent as possible with your loan selection in your lending portfolio.

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