(FORTUNE Magazine) – If you want to see the future of personal investing, open the door marked Dental Lab, Employees Only. It smells like an ordinary dentist's office--"Oil of cloves, you can't get rid of it"--but it looks like a Pentagon war room. It is Dr. Arnold Bonk's personal trading cockpit.

At various times throughout the day, sometimes overlapping, Bonk is a dentist who specializes in oral implants, a student working toward a law degree in night school, and a stock market speculator. Here in a shopping center in Fairfield, Conn., above a travel agency, he has all the electronic tools an amateur investor could imagine (and more than some pros possess): Three Pentium PCs with high-speed Internet connections; six flickering screens (eight if you count the two TVs tuned to CNBC and MSNBC, nine including the black-and-white surveillance monitor that lets him see who might be in the waiting room); a squawk box (so his receptionist can reach him); multiple phone lines; a printer; a fax machine; a wall-sized map of the world; and his command post, a high-back, black-leather swivel chair on wheels.

Dr. Bonk has a broker at A.G. Edwards who manages his "serious money." But the broker doesn't want to know what happens in the dental lab, says Bonk, "and I don't feel like telling him." With the not-serious part of his portfolio--between $50,000 and $100,000--Bonk trades through six-month-old Web Street Securities of Northbrook, Ill., one of the new breed of deep-discount techno-brokers that communicate with customers almost exclusively over the internet and charge flat commissions ranging from $8 to $30. Or less: Web Street charges Bonk nothing--that's $0--for trades of at least 1,000 shares of most Nasdaq stocks.

It's all so tempting. Lately Bonk has been making as many as 200 trades a month. (He says he's profiting.) He won't say how many stocks or options he owns. "Too many," is all. "Every time I get into this situation, I say I'll stop at...and I see something," he says. "I'm like a kid in a candy store."

You can think of Dr. Bonk and Web Street as symbols of the rolling democratization of equity investing in America--a revolutionary saga that began with the dismantling of fixed commissions in 1975 and has since spanned the rise of discount brokers, mutual funds, and 401(k)s. Each step along the way has given individual investors greater control over their own financial destiny. "We've decoded what [brokers] do," says Christos Cotsakos, the messianic CEO of E*Trade, the first pure-play internet brokerage. "We've made [investing] affordable no matter what walk of life you're in."

But you could also regard Bonk and his online facilitators as signs that the 15-year-old bull market has grown more than a little overripe. Sure, no one can argue with using the Internet to underprice the competition. However, to succeed, online brokers need to persuade a few million amateurs that all that stands between them and investment glory is the ability to trade quickly for low commissions. So far, plenty of individual investors seem willing to buy the fantasy, despite considerable evidence that heavy stock trading is a mug's game, whether it's conducted in person, by phone, or over the Net.

Online investing has grown rapidly since the first cyberspace brokerages switched on their servers in 1994. But the almost three million online accounts the industry has attracted still represent a tiny slice of the approximately 80 million accounts managed by full-service brokers and traditional discounters. In addition, the nascent industry has been dogged by occasional technological fizzles. On Oct. 27 and 28, for example, heavy Internet traffic bogged down trading, prompting inquiries by the SEC and the NASD.

Still, undercapacity is a solvable problem, and if forecasts are even half right, the online party's just getting started. A recent study by Forrester Research predicts that by 2002, online accounts will total more than 14 million and hold nearly $700 billion in assets. By those measures, Internet brokers would still command only 5% of the market. But here's the astonishing part: Analysts say that as active traders realize how cheap and easy Internet trading can be, the percentage of retail trades conducted online will explode. According to Bill Burnham, who follows online commerce for Piper Jaffray, the number of Web transactions could approach half of all retail trades in two years. "Every [firm] is going to be doing it," says Michael Gazala, author of the Forrester study. "Every [customer] is going to demand it." None of which sounds outrageous to J. Joe Ricketts, CEO of Ameritrade, an Omaha-based discounter that now gets two-thirds of customer orders over the internet. Says Ricketts, who pioneered touch-tone trading in 1988: "I've never seen anything grow so fast." To put "fast" in perspective, E*Trade's fiscal 1998 first-quarter revenues were $51 million, up 104% over the 1997 first quarter and roughly equal to revenues for all of 1996.

Not surprisingly, the industry's blindingly bright prospects have attracted a geometrically increasing number of participants. "So far," says consultant Julio Gomez of Gomez Advisors in Boston, "internet brokers have been growing faster than internet investors." One year ago, Gomez counted fewer than 15 firms offering online trading. By the end of the 1997 third quarter, there were 33. Today there are more than 60. The roster includes a few names you know--Schwab, E*Trade, Fidelity, Waterhouse--and many you may not. Among the latter: Ameritrade, whose "I bought a ton of steel for eight bucks" ads first ran last fall on Monday Night Football; Suretrade, a Quick & Reilly spinoff and home of the $7.95 commission; and Datek, whose multimillionaire CEO, Jeffrey Citron, is three years shy of his 30th birthday.

At six months of age, Web Street Securities is one of the newer entries in an extremely young field. The founders are Joe and Avi Fox, both in their early 30s, whose last venture was a now dormant international investment-banking firm known as A.F. Joseph (a play on both their names, chosen, says Avi, because "Joseph sounded like an old-line firm.") When a big Brazilian deal fell through at the last minute, Joe and Avi were determined to come up with a plan to generate some cash flow. After a month and a half of research into online trading in the summer of 1996, the Fox brothers saw their new future. "We said, 'Wait a second,'" Joe remembers. "'This isn't a cash generator. This could be the biggest business in our industry.'"

Already there's a lot of buzz surrounding Web Street Securities and its snazzy online Trading Pit, which features scrolling news headlines, live updating stock prices, up-to-the-minute holdings, and bid and ask quotes from market makers. In the latest rankings by Gomez Advisors, Web Street was judged No. 1 for "hyperactive traders" and No. 2 overall behind DLJ Direct. But to say that business is booming would be premature. Total assets under management are below $100 million. As for the number of accounts, all Joe Fox will say is "Our goal is to hit 100,000 by July 1." Profits lie somewhere in the future. Nevertheless, the Fox brothers plan a late spring IPO, pointing to the experience of E*Trade, which went public in 1996 and now has a market cap of $785 million, 325,000 accounts, and $7.8 billion under management.

It's hard to deny the appeal of the service that Web Street and its competitors are peddling. Buying and selling stocks online just feels different, exhilarating even, in ways you don't have to be Dr. Bonk to appreciate. First, it's convenient and private. You can get quotes and research without a broker's assistance, and you don't have a salesman (even a supposedly neutral discount phone rep) second-guessing your investment decisions. Second, it's fun. The colors, the graphics, the thrill of feeling connected to the beating heart of capitalism. Place an order for 100 shares of GM, click, and seconds later it's yours--owning a piece of the means of production has never been easier. Third, your online account comes loaded with useful information: Most online brokers throw in free access to news stories and press releases, stock charts, earnings projections, even analysts' reports.

And of course, it costs just a fraction of the $125 that a mainline discounter would charge on the typical $15,000 ticket. And the price keeps getting lower. E*Trade cut commissions seven times in four years before settling in at $14.95 for listed trades. Ameritrade made a splashy debut last fall at $8 but was undercut almost immediately. And as mentioned, some Nasdaq trades cost nothing at Web Street Securities. Indeed, Ameritrade's Ricketts says the day is not far off when online firms will pay customers who maintain fat cash or margin balances for the privilege of executing their trades.

For all the flash and discounting, online brokers rely on many of the same sources of revenue that old-fashioned brokers do. Payment for order flow, for example. That's when market makers offer brokers a piece of the spread between the bid price and the ask, as a reward for sending orders their way. "They're kickbacks, quite frankly," says Piper Jaffray's Burnham. And while payment for order flow is under pressure from NASD regulations aimed at protecting small investors, it still accounts for some 20% of a typical online brokerage's revenues. Without it, Web Street Securities wouldn't be filling large Nasdaq trades "free."

Even more important for online brokers that clear their own trades is money earned on idle cash in customer accounts. Ameritrade, for example, pockets the difference between the interest it pays on cash balances, 3%, and the interest it collects on margin loans, which is tied to the prime rate and varies with the amount borrowed. "We have a four- to five-point spread," says Ricketts. "That's really where we make our money." Both margin lending and payment for order flow are, if anything, more important to online brokers than they are to their older offline peers, most of which have developed more diversified revenue streams over the years.

Where the two really part strategy, of course, is on the size of commissions. Online brokers make less on each trade but don't necessarily wind up with less overall--if they can persuade more customers to trade more often. As retailers say, fast nickels make you just as rich as slow dimes. "I'm going for fast nickels," says Michael Anderson, a former toilet paper salesman for Procter & Gamble, now president of Ameritrade. His goal for the year is to double his customer base to 200,000 accounts, each of which trades twice a month, compared with less than once a month for the typical full-service client. It's a classic example of demand elasticity: Charge less for something, and people will buy more. "It's pretty clear that customers generally double their activity once they open an online account," says Gomez.

The other part of the fast-nickel strategy is to expand the customer base beyond the Dr. Bonks of the world into the much bigger market of ordinary investors. "When the business was just getting started," says E*Trade's Cotsakos, "we went after the early adopters, people who were techno-savvy. Now we're after the mainstream." So is the rest of the industry. When Ameritrade doubled its advertising budget last year, to $14 million, it nearly doubled its accounts. "Which is why we'll spend way over $20 million this year," says Ricketts. The point of much of that advertising is to glamorize stock trading--to show that little guys armed with internet technology and low online commissions can be just like Wall Street pros.

A case in point is Web Street's new television spot, the centerpiece of a $20 million national advertising campaign that the Fox brothers have planned for 1998. The commercial opens on a sinister-looking character who could be Gordon Gekko from the movie Wall Street, raging helplessly while a big stock gets away from him. "Who has that kind of power?" he screams. Cut to a nice-looking guy who could be your neighbor, sitting in front of a computer in his suburban den. "Sell," he says softly, clicking on his mouse.

"Honey," his wife calls from the other room. "Your sloppy joe is ready."

"Be right there."

"Web Street Securities," the voice-over intones. "You're a player now."

The commercial is silent on whether "being a player" is actually a good way for investors to make money. Most knowledgeable investors would say it's not. For one thing, whether you pay $8 a trade or the full-service freight, frequent trading still runs up substantial hidden costs in the form of the spread between the ask price you pay when you buy and the bid you get when you sell. (The profit goes to the market maker and, as previously noted, some gets kicked back to the broker.) On a $10 Nasdaq stock, a one-eighth spread represents a 1.25% haircut on each buy or sell order. The more of those costs you inflict on yourself, the greater the drag on your performance compared with a simple buy-and-hold strategy. And of course, that's before taxes.

The ads convey an unambiguous enthusiasm not shared by independent observers. "With many people this is a legalized form of gambling," says Burnham. "People have to realize this isn't a videogame; this is their retirement they're gambling with." Ameritrade's Anderson counters that all his customers are consenting adults. "We're providing people who are interested in being very active in the market the ability to buy and sell on two points and make a lot of money. A thousand shares, you're up $2,000. That's $16 for me. Did you have that opportunity before? No."

Even so, Anderson doesn't trade like that for his own account. Neither does his colleague Ricketts, who concedes that "very, very few" frequent traders come out ahead in the end. "The best thing, really, for an investor to do is buy a good company and hold it," he says. "Trading often and heavy is not something that makes you a lot of money. Now that's contrary to my own interests, but it is the truth."

Indeed, after hanging out in chat rooms with novice investors, listening to them complain about losing money, Ricketts knows that even many of his current customers aren't really equipped to be traders. "I can tell from their complaints that the losses are their fault," he says. "They should either use a full-service broker or go to the library and learn how. But they don't. They go to the cheapest broker and then screw up."

That's why Ameritrade programmers are developing a new computer game called Darwin (as in survival of the fittest). "You can't tell your customers they don't know what they're doing," Ricketts explains. "So I said, 'How can we help these people and help ourselves at the same time?'" Darwin, free on CD-ROM this spring, will teach novice options investors the Black/Scholes model, butterfly spreads, and other tricks of the trade. And all in a setting "with all the wonderful excitement and features of [the adolescent computer game] Doom," says Ricketts, oblivious to the irony.

During the third week of December, things got pretty hairy in Dr. Bonk's dental lab. Coming up on a triple-witching Friday, he found himself sitting on $15,000 in out-of-the-money OEX calls--bets that an index composed roughly of the hundred largest stocks in the S&P 500 will go up. In a market rally, Dr. Bonk stood to make good money. But ever since the peak on Tuesday, stocks had been in a serious swoon. By Friday morning, with the market still diving, it was clear that the calls would soon be worthless.

"So I went into OEX puts," says Dr. Bonk. Puts are bets that the market will fall. All day he sat before his screens, playing incremental blips, digging his way minute by minute out of a $15,000 hole. Amazingly, he was successful. "I was able to bounce back better than I thought," he says. "I ended up probably a little better than breakeven."

Was he chastened by the near miss? No way. Bonk says he had a blast on Friday. In fact, he's now decided to quit seeing patients on triple-witching days, the better to stay on top of the market. That's fine with the Foxes. On the day that Dr. Bonk barely broke even, he figures he made 30 trades, which netted Web Street about $500. "There's a reason Web Street likes me," he says.

REPORTER ASSOCIATE Rajiv M. Rao