The cost of buying a stock has never been cheaper.

A vicious price war is raging among online brokerages as they scramble to attract and keep customers. That has squeezed the profit margins of the online brokerage firms, but consumers can benefit.

Cyberinvestors now can buy thousands of shares of their favorite stock and pay commissions in many cases of $10 or less per trade.

“Investors are getting deals now that could not have been imagined a few years ago,” said Roger Riney, chief executive of Scottrade Inc., a closely held St. Louis discount broker.

Scottrade offers one of the lowest commission rates – $7 per trade – but all the major online firms have slashed prices. Charles Schwab Corp., the largest online broker, cut its commission rate recently to $12.95 per trade from $19.95.

Similarly, Fidelity has reduced its commission to $19.95 from $29.99, and it’s even lower for more active traders.

By comparison, some of the major full-service brokerage houses still charge commissions of $100 or more.

Online trading exploded during the late 1990s as the dot-com craze swept through Wall Street and then Main Street. Hundreds of online brokerage firms sprouted during this period.

After the Internet bubble collapsed in the spring of 2000, many of these firms were purchased or closed. Today, six firms account for about 80 percent of all the online-trading volume.

But another round of consolidation could be under way. In mid-June, Ameritrade Holding Corp. announced a $2.9 billion deal to buy TD Waterhouse Group Inc.

So enjoy the low, low prices while you can. Consolidation will mean less competition, which could mean less need for discounting.

Big advertising push

Online brokerage firms are hawking their businesses these days like there’s no tomorrow.

Visitors to financial Web sites are inundated with advertisements: “Get 100 Commission Free Trades,” reads an E-Trade ad; Ameritrade touts its “50 Free Trades plus $100 Cash bonus;” and a Scottrade spot simply said “$7” – its basic commission.

These firms and the other 100 or so online brokers are not only slashing prices, they’re also expanding their services and upgrading their Web sites.

The fundamental problem for the industry is that people aren’t trading as much as they once did, so competition for those who do trade is fierce.

“What you have seen over the past year or so is a mini-price war break out,” said Timothy Carpenter, senior analyst at Watchfire Gomez/Pro, which tracks online trading.

Competition is forcing the higher-end firms to become more like the lower-end firms and vice versa, he said. Fidelity still has by far the most in-depth, sophisticated research, but most of the firms now offer independent research and other offerings.

E-Trade Financial Corp., for example, now operates an online bank and mortgage business.

“We are building out our investing, banking and lending platform,” said Michael Curcio, vice president of trading for E-Trade. “Customers can move money among their stock trading accounts, checking accounts and money market accounts.”

More ‘bells and whistles’

Some investors may be hesitant to trade stocks over the Internet and prefer face-to-face contact with actual brokers. But increasingly online brokers are becoming more accessible to average investors, and most of them are opening real brick-and-mortar offices.

“All of the firms have enhanced their operations, trying to find a way to differentiate themselves from their competitors,” said Mike Vinciquerra, an online analyst at Raymond James & Associates.

Scottrade Inc., one of the fastest-growing discount firms, has 1.1 million online customer accounts, but it also has 230 offices throughout the United States. That’s more than double the number of offices at Fidelity. Scottrade plans to open 30 to 40 more branches this year.

“Even customers who trade online find it comforting to know there is a Scottrade office a couple miles away,” said Riney, of Scottrade. “They can come by and drop off a check or make a deposit of stock into the account. They use the branches quite a bit.”

Also, online brokers are offering more “bells and whistles” on their Web sites to help customers better understand investing and trading. For example, now most of the firms offer a cost-basis feature, which helps customers answer the most important question of all: “How are my stocks doing?”

This feature shows what a customer originally paid for a stock and then calculates the profit or loss. A couple of years ago, only the largest firms offered this feature.

Many of the firms offer financial planning and retirement help with the click of a mouse. Customers can trade options, mutual funds and exchange-traded funds as easily as they do stock.

“As these products have gotten more popular, online brokers are offering them,” Vinciquerra said.

Consolidation coming

Clearly, changes are sweeping through this industry, which really only began about a decade ago. Online trading peaked during early 2000, as millions of novice investors tried but mostly failed to catch a cyber-rocket to riches. Not surprisingly, the collapse of most of the dot-com companies and a blistering bear market brought a dramatic decline in online-trading volume.

The average trading volume at Ameritrade Holding Corp., based in Omaha, Neb., peaked at 270,000 trades per day in early 2000 but fell to 116,000 trades in early 2003. The volume has recovered in the last year to about 170,000 trades per day.

The story was the same at most of the other firms. Many smaller firms were closed or purchased, while the larger firms just tried to stay afloat.

Today, more than 80 percent of the trading volume is confined to six of the largest firms. And most online-trading analysts predict that within a year or two, the Big Five will become the Big Three.

“The big fish spent the last few years eating up the little fish,” said Carpenter of Watchfire GomezPro. “The feeling on the street now is that some of the big firms will consolidate.”

The reason is that during the bull market of the late 1990s, these firms greatly expanded their computer capacity even as trading volumes were declining.

“These firms need volume, and one way to get it is to buy another firm,” Carpenter said.

Curcio of E-Trade said his trading platform could easily handle “double to triple” its current volume.

On May 9, the news broke that E-Trade might buy Ameritrade Holding Corp. That deal fell through, but in June, Ameritrade announced a $2.9 billion deal to buy TD Waterhouse Group Inc.

Eventually, one of these deals will be consummated because of the cost savings to be realized from a combination. For example, online analyst Richard Repetto recently estimated in a report that 50 percent of TD Waterhouse’s expenses could be eliminated with an Ameritrade merger.

Cutting costs, slashing prices and merging with competitors are all survival strategies being pushed on the industry. What might help even more is another raging bull market that would get investors enthusiastic about stocks again.

Riney said Scottrade typically attracts the more active traders because of its low commissions, but his average customer trades only once a month.

“The market has been moving sideways more than we would prefer,” Riney said. “We would love to see a sustained up market. It’s a lot more fun to check your stock prices at the end of the day when the market is going up.