THERE is something magical about trading stocks over the Internet - push a button and thousands, perhaps millions, of dollars zip from your bank account to your stock portfolio. At least that is the way it looks from this side of the computer screen. In fact, the money does not move nearly so fast, and the share certificates - if they even exist - might not move at all. Patricia Meier, a senior vice-president of United States-based discount broker Charles Schwab, told an audience in Hong Kong last week that one of her company's top security objectives was to make sure customers could not move money over the Internet. 'You cannot put money in or take money out on the Web. The only thing you can actually do is trade against commission,' she told members of the American Chamber of Commerce. Schwab slows the process by refusing to take customers' banking instructions electronically or over the phone. This means money must be moved the old-fashioned way, using pen and paper - although a concession is made for signature-bearing faxes, a hybrid of paper and electricity. The company's practice seems anachronistic but somehow comforting in a week spent listening to customers of failed CA Pacific Securities demonstrate loudly about their unhappiness with the compensation offer for their missing cash and securities. What kind of protection exists for Internet investors, whose assets - without Schwab-style induced slow motion - could disappear in the blink of an eye? As the ranks of Hong Kong's on-line investors grow - Ms Meier says 81 per cent of the trades done through Schwab's SAR office, opened in April 1997, are done on-line - so do the potential dangers. The Securities and Futures Commission urges investors to adopt the same sceptical 'know-your-broker' approach to on-line brokers as to traditional ones. Start by making sure your brokerage candidates are licensed. A quick look at the SFC Web site ( www.hksfc.org.hk ) or a call to its hotline (2840 9333) should settle the matter. Charles Schwab is licensed, so is Hong Kong's own on-line broker, Boom Securities. Neither, however, is a member of the Hong Kong stock exchange, a fact that could cause some would-be clients concern. After all, many of CA Pacific's customers have discovered they are ineligible for compensation because their investments were transferred to a group company that was not an exchange member. Schwab's clients probably need not worry, because the Hong Kong office trades only US-listed equities (Hong Kong-authorised unit trusts are on offer, but not locally listed stocks). So any share transaction initiated here is quickly bounced to the parent company, which is well-capitalised and under the watchful eye of US regulators. Boom presents a different case. It does trade locally listed shares, and so its failure to join the exchange seems worrisome. Mark Duff, the company's managing director and chief executive, said Boom's capitalisation was enough to cover 100 per cent of its clients' assets. This, he said, put it well ahead of the SFC's requirement that registered securities dealers maintain liquid capital of $3 million or 5 per cent of total liabilities, whichever was greater. That's fine for now. But as Boom gets bigger, its own capital probably will no longer be adequate to the task. Plus, there is a further wrinkle. Because Boom is not a member of the exchange, it has to rely on other brokers to execute its clients' orders. Each of these brokers - Mr Duff said there were fewer than five of them - represents another layer of risk. If any one of them was to go bust, Boom and its clients would feel the pain. Mr Duff is working on a solution. He said Boom planned to pioneer a concept that was well-established in the US - privatised compensation. Instead of relying on the stock exchange's compensation fund, he hopes to work out a deal with an insurer to cover all of Boom's clients' assets, including those in the custody of executing brokers. 'We're trying to work with an insurance company to create an independent private-sector compensation fund for our clients,' Mr Duff said. 'Our intention is not to use or rely on anyone else's compensation fund.' As a further protection, Boom farms out its execution business only to those brokers that do not do margin trades, and Boom does not trade on margin itself. 'If you look at the liabilities in being a broker right now in Hong Kong, it's really margin trading,' Mr Duff said.