(FORTUNE Magazine) – This summer, at the PC Expo trade conference in New York City, Launny Steffens, vice chairman of Merrill Lynch, the world's largest full-service brokerage, denounced online trading as a form of gambling. "The do-it-yourself model of investing, centered on Internet trading, should be regarded as a serious threat to Americans' financial lives," he railed. Steffens can rant all he wants. But four million investors (and counting) aren't listening--they're too busy logging on to their online accounts. Gone are the days when trading online was the domain of techno geeks. The hero of one online firm's television commercial is a tow-truck driver, and that's no stretch. Now you're as likely to find a plumber scouring the Web for stock tips as a computer programmer. How are the newcomers faring? As you'll see in the following pages, we tagged along with a small crew: a cop, a housewife, and the family of an old-style professional broker (sorry, Launny, even the pros are starting to catch on). Truth be told, none seem to miss the help of a traditional broker.

Three years ago people like this had not even heard of online investing. There were only a few thousand investors in cyberspace then, and just three online brokerages. "Even a year and a half ago, people in our industry didn't think the Web could compete," says Dan Leemon, chief strategist at Charles Schwab. Now online brokers can hardly keep up with the crush of investors logging on. By some estimates, 21 million people will have online accounts by 2003. E*Trade, the second-largest online broker, signed up 85,000 new customers in the second quarter, bringing it to a total of 540,000--up from 20,000 in 1995. Two million Charles Schwab customers have online accounts, up from 336,000 three years ago. They now account for the majority of Schwab's total trading business. Online brokers handle some 253,000 trades a day--approximately 10% of all U.S. trading.

What's got so many investors scurrying online? For starters, it's a lot easier now. "Trading online used to be a real hassle," says Julio Gomez, who runs Gomez Advisors, a research firm in Concord, Mass., that tracks online brokerages. In the old days you needed special software, an expensive computer, and lots of patience. Now it costs just a few hundred dollars for a computer with a high-speed modem that gets you online in a hurry.

What's more, investing online is cheap. There are now at least 98 online brokers, and fierce competition has sparked a price war. Over the past two years commissions for Web trades have dropped 70%, from an average of $52.89 a trade to $15.75.(By way of contrast, full-service firms still charge between $300 and $500 a trade.) One deep-discount online broker, Web Street Securities, even offers Nasdaq trades free.

The scramble also has forced the online brokers to clean up their act. Lousy service won't do. Customers expect their firms to give them access to, well, just about everything: research, news, stock charts, technical graphs, even shares in IPOs. Discover Direct and DLJDirect hand over to retail customers what was once proprietary research that their parent companies, Morgan Stanley Dean Witter and Donaldson Lufkin & Jenrette, reserved for big institutional customers. Even Suretrade, a deep discounter, offers stock charts and consensus earnings estimates. On E*Trade's Website, investors can play a stock-picking game designed to hone their investing skills. These days, online investors have access to as much information about the market as any professional broker.

There are no good figures for how many investors the Web has lured away from full-service firms, but there's anecdotal evidence. At Schwab, 100,000 customers switched over in the past year. E*Trade says 20% of its customers come from full-service brokers. As one former full-service investor says, "The only thing I miss about my human broker is getting taken to baseball games."

Even Merrill Lynch has pulled its head out of the sand. In a speech this fall, vice chairman Steffens backpedaled: "Online trading itself is not bad. In fact it's a refreshing wind in our industry, and one that we welcome and embrace." This winter Merrill plans to launch its own online trading service. Sure, Steffens and his crew still seem behind the curve--they require a minimum balance of $100,000, and even then you'll pay over $40 a trade. But it's clear they've gotten the message. That stampede of four million (and counting) investors herding online is hard to ignore.

THE FAMILY

Last winter Taylor Davis, then 4 years old, stunned her parents at the dinner table by announcing, "I want to buy Kool-Aid stock." This was no precocious preschooler simply mimicking grownup talk. Her mouth ringed orange with Kool-Aid, Taylor knew whereof she spoke: Every night for the past year and a half, she's clambered onto her father Duane's lap as he flips on the computer to review the Ameritrade online investing account he's set up in her name. In the Davis family, thanks to the Internet and $8 online trades, everybody is an investor.

Duane, an honest-to-God, real-world broker for First Union in Winston-Salem, N.C., used to be the only one in the family who cared about the stock market. His wife, Carol, was too busy getting her law degree and raising their two children. To the kids the stock market was some far-off place where Dad went to work. But last year Duane decided that setting up an online account would be an affordable way to teach his family about the market. The plan worked. "When I was growing up, nobody talked about the market around the dinner table," says Duane Davis. "Now my kids are sitting there giving me stock tips."

At first, the Davis kids viewed online investing as just another computer game. Duane would sit them up on his lap and point to the screen as he clicked in orders to buy stock in their favorite haunts, McDonald's and Gymboree. After Duane took his 3-year-old son, Duane II, out to buy Nike sneakers, he then sat him at the computer and bought $200 of Nike stock for his account. They log on together every night, pulling up charts that show how the kids' portfolios have grown; each of the Davis children now has about $6,000 in online accounts. The family's goal is to invest enough money to pay the kids' college tuition in 15 years. It hasn't taken long for the kids to understand that this is no game--"Show me my money," they yelp when their father comes home at night.

Their mom, on the other hand, was wary of jumping into the market. Back when they were using real-world brokers, Carol let Duane do all the stock picking for her account. But when she helped him set up an organization for educating black investors (the Coalition of Black Investors), she caught the bug. Last spring, with a dozen buddies from her book club, she organized an investment club, Sisters Making Sense. Like Carol, none of the others in the club knew much about investing, but they were determined to learn without the help of a broker. Sisters Making Sense trades via an account on Ameritrade, the cheapest online broker the group could find.

As she started to learn, says Carol, "I fumbled around the Web a lot." Then, in August, just a few months after the club was launched, Carol watched their $7,000 investment sink 10%. Their shares of Disney, for example, dropped from $39 when they bought them in June to $30. But Sisters Making Sense was saving for retirement, so they decided to ride out the market chaos and continued contributing $100 apiece every month to their account. Just recently, after buys like Pepsi and AT&T, which the group had purchased at their summer lows, their portfolio has started to show a positive return.

Carol says she has now developed some savvy. She uses the Web to whip up stock charts and downloads research from sites like DBC.com (her favorite). In seven months of online investing, Carol says, she has learned more about the market than in ten years of living with a broker.

Still, the Davis family's main source of income is Duane's job as a full-service broker. Isn't he worried that his online hobby could steal his business? "A lot of people in my industry are afraid of online trading; I'm not one of them," he says, insisting there's room in the brokerage business for both types of services. Besides, a full-service broker isn't going to help 5-year-old Taylor reel off stock tips. Duane has even passed on to clients some of his daughter's recommendations (Gymboree and Pepsi). Her latest tip? "Boeing," she declared recently. It turns out she really meant "bowling." But you never know--it might be worth looking into.

THE COP

A year ago Frank Brucato's heroes were the New York Rangers. Today, Brucato, a 29-year-old transit cop from the Bronx, has just one hero: Michael Dell. "Mikie Dell? I wish I was his son," gushes Brucato in a heavy Bronx accent, flashing Dell's price chart on his computer screen to point out how well the stock has done. These days Brucato's more likely to read stock reports on the Internet than to catch a game on TV. He even dreams of becoming a professional day trader. But Brucato's not giving up his day job just yet. Despite his enthusiasm, this cop's rookie year in the market makes a midnight patrol in New York City's subway system look like a cakewalk.

Brucato started investing online last October after the sergeant at his precinct told him how cheap it was and how much extra money he could make. Up until then, Brucato had never even owned a mutual fund. But feeling flush with cash--he'd just inherited $30,000 from his grandparents--and intent on buying an engagement ring for his girlfriend and a house, Brucato bought a computer and opened an online brokerage account.

He followed his sergeant into two stocks, Mountain Energy and Physician Computer Network. He'd never heard of them before, but they were both cheap, trading under $5, and Brucato figured they had no place to go but up. At first he was cautious, investing only a few hundred dollars. But then he discovered the investor message boards. All over the Web, people claiming to be "insiders" insisted that these stocks were going to be up over 1,000% in the next six months. Messages hinted at big contract announcements just around the corner. To Brucato it sounded like easy money. "You ever see them playing three-card monte in Manhattan? Well, they get you because you think, 'How can I lose?' This is the same thing," he says.

If everything he'd read on the message boards were true, Brucato figured he could make a quick $200,000--enough to buy the ring and the house, and still have enough left over for stereo equipment and furniture. He poured in a total of $20,000. "Greed drove me," he says, shaking his head.

Cheap stocks are usually cheap for a reason. Shortly after Brucato bought in, the stocks plunged in value--to less than a penny apiece. Mountain Energy turned out to be a potential fraud (Brucato has been questioned by investigators from the Securities and Exchange Commission about the stock). Physician Computer Network simply tanked. By the end of this summer, officer Brucato had lost nearly two-thirds of his inheritance.

Looking back on his first year in the market makes Brucato shudder. "It was one big roll of the dice--and I rolled a seven," he says. Still, he's not scared off.

Now he steers clear of penny stocks, message boards.. and advice from his sergeant. Instead, he spends several hours a day online reading analyst reports and investor newsletters, and following price charts. He's started investing in options, hoping to piece his portfolio together again. In early October he bought options on both America Online and Donaldson Lufkin & Jenrette: He's an AOL subscriber, and he liked DLJ after reading a report about how interest-rate cuts would boost bank stocks. He sold his AOL contracts in late October for a $5,500 gain. And the value of his DLJ contracts has tripled.

Despite the success, Brucato's moving warily. He has been eyeing Dell for weeks. Even though he admires the stock--and the company's founder--he won't buy until he gets to know the computer industry better. What he has learned, see, is that buying stocks is not so different from police work: "You're supposed to look around a little, not just jump into a situation without knowing what you're getting into. That's when it gets dangerous."

THE HOUSEWIFE

For most of her life, Joan Sherman had regular old dreams--you know, ordinary dreams about her children, her husband, her dogs. But in the past few months, the 54-year-old homemaker from Pound Ridge, N.Y., has started dreaming about the stock market. Once she dreamed about buying Western Digital; another time it was Merrill Lynch. "The name sort of pops into my head as soon as I wake up," says Sherman. It's not surprising that the stock market has seeped into her subconscious. After all, she spends her waking hours transfixed by it.

After 34 years as a suburban housewife, Joan Sherman has found her true calling: picking stocks. She says that thanks to her knack for timing the market, she has more than doubled her (and her husband's) retirement savings over the past two years. In August she made a move that many financial pros would envy. Going mostly on gut instinct, she sold off most of her big positions (like Citicorp at $150, for a 50% return). She's now sitting on an enviable pile of cash.

Sherman once filled her days playing ladies' tennis matches at the country club and planting zucchini and string beans in her vegetable garden. Her husband, a tax accountant, had always been in charge of the finances. She'd never heard of trading volume, quarterly earnings, or a ticker symbol. But then, two years ago, Sherman's stockbroker persuaded her to buy Cendant. The day after she bought it at $35, the stock dropped 20%--now it's trading around $15. After that doozy of a recommendation, she decided she could do better by trading online on her own--without a broker. Almost immediately after she opened her account online, Sherman was hooked. "Tennis was about enough action for me most of my life, but this--the highs and the lows that you go through when you see your money disappear or grow--I love it," she beams. Now her racquet collects dust, and her garden has grown tangled with weeds. Sherman says she no longer has time for such trifles: "I'm playing with the big boys now."

Instead, she spends hours a day at her computer, scouring for stock tips, checking charts, and reading research. When she can't get to her computer, she obsesses. This summer while on vacation with her husband at the National Forest in Arizona, she couldn't relax until she stopped at a ranger station to call in to her account and check on the market.

At home Sherman works out of her married son's old bedroom (his toy basketball net, still attached to the wall, hovers over her computer). Every morning she logs on to her account with Charles Schwab and checks the prices of 32 stocks on her tracking screen, a list of companies she either already owns or would like to own. If nothing's going on there, she clicks on one of her 100-odd stock-related bookmarks. Most days she roams around investor forums like Silicon Investor and Motley Fool looking for a tip or two.

Some of her best ideas come from a fellow online investor, one James Taylor of Houston. They've never met face to face, but Sherman says Taylor is a wizard at using technical charts that track trading volume and price trends as a market forecast. He has given her such good tips that Sherman now pays him--$50 a month. At $600 a year, that's pretty close to what a broker would cost. But Sherman says she'd rather pay a fellow investor who doesn't make a commission on her trades--and who's also putting his money on the line, as it were.

Still, for all her frenetic vigilance, Sherman is a calm investor. It usually takes her days if not weeks of mulling a stock over before she buys. On one Thursday morning late in October, she was tracking Amazon.com. It jumped six points, and Sherman was tempted--it seemed the stock would keep climbing. But she passed. Too expensive, she explained. She'd rather wait till it dips again.

Part of her caution comes from weathering August's market upheaval. In June she probably would have jumped on Amazon. But watching how quickly the market can turn has made her wary. Besides, Sherman says, it goes against her nature to overpay for anything. Years of training at Loehmann's and the Barneys warehouse sale have paid off. Buying a skirt and buying a stock, she says, are not that different: "[The market's] like shopping--when I go to Bloomingdale's, I want to get something wonderful, but I have to get it for the right price."