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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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.

How to Get a Loan through a Peer to Peer Lending Website

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

Where to Begin with Investing

• 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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I have no doubt that the class action suits will continue and there will most certainly be more to come. Unfortunately, I do not believe anything good can come of them, as the damage has already been done. It may be a very long time before Yahoo! ever reaches $30 again, unless they can actually make good on the promises that were made in March.

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Given that they do offer a very good interest rate for students, they will surely have no problems attracting borrowers. However, I think GreenNote has a long road ahead if they intend to attract enough investors in order to meet the demand. Unless they can eventually insure part of the loan principal as Fynanz does or provide a secondary market for liquidity, I have serious doubts as to whether they will be able to compete with Fynanz and survive the long road to profitability.

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Microsoft will likely lay low for a while now to see if Yahoo! will come crawling back as they lose billions in market value. It will also allow some time for the share price to fall and stabilize a bit before they begin the hostile takeover. There is also a lot of talk that Yahoo! will take a poison pill by allowing current shareholders to purchase new issues and thus diluting shares (and effectively lowering the stock price). I think this is an extremely poor tactic and undermines the whole purpose of investing in public companies. It is also possible that Microsoft will never pursue a hostile takeover for this reason. Either way, the Yahoo! board of directors needs to be prepared for another barrage of class action lawsuits.

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• Auto-login

This is disabled by default. In order to enable it, right-click on the monkey, and click “Disable Automatic Login” under the User Script Commands. When the prompt appears asking if you want to disable the auto-login, click Cancel and it will enable the automatic login. I realize this probably isn’t the most intuitive thing in the world, but I was too lazy to develop my own dialog and I just used the window.confirm() JavaScript method. Your username and password is stored locally within your browser and is not transmitted anywhere other than to the Prosper website.

I assure you that that the auto-login feature does nothing evil. I have it disabled by default in case you don’t believe me. Your username and password will be stored as configuration values within Firefox. If you navigate to about:config in the browser, you’ll see them under greasemonkey.scriptvals. Please note that the password is not encrypted. If you’re using a public machine or someone else’s computer, you may want to think twice about using the auto-login feature.

• Total Revolving Credit and Total Available Credit

If there is more than 0% utilization, then the calculated total revolving credit and total available credit is displayed. If utilization is 0%, it is displayed as Indeterminate.

• Estimations on Listing and Search pages

The estimated loss, adjustments, fees, and estimated return will be displayed on listing pages. On search pages, I display just the estimated return and estimated loss (to take up a bit less space than displaying all 4 numbers). You will need to be logged in for this feature to work.

If you’d like to try it out, first install Greasemonkey on Firefox. Then click the button below to install:

If you have any suggestions for new features to add, please feel free to let me know and I’ll be glad to see what I can do to accomodate.

FireFox 3

RateLadder Prosper IRR 12/1/2007 = 1.32%

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http://wealthboy.com/wbsroi-technical-details/

Once I’ve constructed the tables necessary to calculate the payments that a lender has received, I have all of the information necessary to calculate the WealthBoy Strict ROI. The WBSROI performs two return calculations: TotalROI and AnnualizedROI. The TotalROI calculation is calculated by dividing the total profit (interest less servicing fees) by the total amount invested (which excludes reinvested loans). The calculation does not take into account the declining balances, hence the “strict” designation. If you have been lending successfully for a long time, it is certainly possible to have a TotalROI more than 100%. Here is the formula in a nutshell:

TotalROI = (Total Interest Received – Fees – Losses on Defaults) / (Total Loan Originations – Reinvested Loans)

The AnnualizedROI is calculated by dividing the TotalROI by the weighted average loan age and multiplying by 12. The weight for each bid is the amount lent as a percentage of the total originations. This may not be the best way to perform the AnnualizedROI calculation, but it was the best I could come up with. I believe the TotalROI is relatively indisputable, barring the errors in the payment calculations. The AnnualizedROI could probably use some enhancements.

I like the idea of having a strict ROI calculation that doesn’t account for the declining balances. Many lenders on Prosper may not even be aware of what a declining balance is. Others may know about declining balances, but they just want to know what kind of return they’ve received on the total amount they’ve invested. That is what the WealthBoy Strict ROI attempts to do, and I believe it does it reasonably well. If you are reinvesting loans, your strict ROI should be reasonably close to your average interest rate less fees and your default rate.

So what about late loans? Why aren’t they part of the calculation? Well, one of the nice things about of my calculation is that it really doesn’t take much more effort to account for the probability of late loans eventually defaulting. With the information provided in the calculation, you know the total investment and you know the total profit. All you need to do to account for late loans is to incorporate the loss estimation into the profit and presto! You have your new ROI including the probability of late loans defaulting.

I decided to exclude any default projections from the initial announcement of my ROI calculation. Although it probably wouldn’t take much more effort to incorporate it, I think there is something to be said for an ROI calculation that doesn’t make any kind of suppositions. The WealthBoy Strict ROI calculates how much went in and how much came out. It makes no assumptions about the future value of loans. I have left it to others to make whatever assumptions they wish to make about estimating defaults.

I do realize that not everyone has the expertise and/or resources to put together a Microsoft SQL Server database for analyzing Prosper data. Unfortunately, I don’t have a web application connected to my database so that people can see their WBSROI. If you would like me to provide you with your WBSROI, just post your screen name into a comment here. I’ll post the data in a responding comment. If I become overwhelmed with responses to the post, I may not be able to respond to requests any longer. If it does become a popular metric, perhaps someone with a popular stats site may be willing to add my calculations to their site. Here is what the WBSROI on my account looks like:

Screen Name:WealthBoy
Total Bid Count: 45
Total Reinvested Bids: 3
Total Originations (total amount loaned): $2,250
Total Investment (total amount loaned excluding reinvested bids): $2,100
Total Income (total principal and interest less fees): $209.22
Total Profit (total interest less fees and defaults): $60.53
Total ROI: 2.88%
Average Loan Age: 1.76 months
Annualized ROI: 19.62%

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