Bruce Emerson knows how the online trading craze died. He helped write its eulogy.

Emerson, 39, has been actively trading Internet stocks full time from his Los Angeles home for the past two years. By many standards, he's done well. He's been able to live off what he's made from 75 to 150 trades a month and hasn't touched his initial investment.

But February's Internet-stock bloodletting and April's declines produced sleepless nights, heartburn and nausea. After making 138 trades in March, Emerson made just 48 in June and has bought or sold stock only a dozen times this month.

It seems he's not the only one.

The number of online trades is estimated to have grown only 10% to 15% during the past three months compared with the first quarter. During the first quarter, that growth was 47% and during the fourth quarter it was 34%. A year ago in the second quarter, online trading rose by 16%.

This slowing also is being seen in the quarterly trading numbers from online brokers.

National Discount Brokers Group

(NDB)

, for instance, reported that average daily trades increased just 7.5% in its fiscal fourth quarter from the previous quarter, and

Ameritrade

(AMTD) - Get Report

said its daily traffic rose 14% for its fiscal third quarter.

Each company still reported double-digit earnings growth as more trading days, greater interest revenue and spending controls kept them in the black. But both buy-side and sell-side analysts say the contraction signals the end of astronomical growth in online trading, which accounted for about 16% of all equity trades in the first quarter according to

Credit Suisse First Boston

, up from next to nothing a few years ago.

So far, however, the effect on the online brokerage stocks has been minimal. And if the companies continue to grow by adding accounts or through other avenues, less trading may not have much long-term impact either, analysts say.

But despite recent declines, online brokerages still are trading at lofty levels, giving them further to fall if they fail to make up for the slower trading. For example, they took a small hit in June after

Charles Schwab

(SCH)

reported that its trading volumes were lower, according to

Lehman Brothers

analyst Richard Repetto.

And analysts say they don't expect to see trading mania comparable to the first quarter of this year and the last quarter of 1998 again. They attribute the previous frenzy to one-of-a-kind Internet stock mania, seasonal demand in March and early April due to IRA investments and a bull market that wouldn't quit. Those three things together created what analysts insist was an exception.

"We didn't expect the kind of growth they've had in the last year or so to be sustainable, because they've basically gone from a zero to their current numbers," says Steven Kornrumpf, who manages investments in the

New Jersey State Division of Investment

.

The experts aren't negative on the e-brokers yet, but they say the lower (though still healthy) growth means the online brokers must keep up customer account growth and develop alternative revenue streams. Those who don't, says Dan Burke, an analyst at

Gomez Advisors

, will suffer in consolidation. "I think there will be some shakeout, but the firms that are still growing their accounts will be OK," Burke says.

Steven Appledorn, senior portfolio manager and co-manager at the

(MNNBX)

Munder NetNet fund agrees that the quality of the accounts must improve.

Less trading "does place increased emphasis on execution in terms of broadening the depth of their relationship of each individual investor," Appledorn says. (About 5% of the fund's $2 billion in assets is invested in online brokerage stocks, he says.) But for now, he figures any reaction to the drop in trading would create an opportunity.

"Over the short-term we are only concerned to the effect that it may create some short-term volatility in the stocks," he says. "If that does happen, we are going to view that as an opportunity to add to our positions."

Ironically, that's the same Internet stock volatility that has pushed the nonprofessionals out of the game. Stocks like

Amazon.com

(AMZN) - Get Report

and

Yahoo!

(YHOO)

have dropped by large amounts since hitting 52-week highs in April. That's what taught Emerson his lesson.

"I did really well in November, December and January last year and I gave back a lot of the profits just by hanging onto the stocks," he says. "Seeing those paper losses, it was very difficult to sleep at night. It was very, very demoralizing. It sort of shook me into thinking that I needed to change my strategy." Now he's taking longer-term positions and spending more time on research.

With Emerson and his brethren in mind, online brokerages have indeed been ramping up other financial services. Ameritrade is working on an online investing site,

OnMoney;

E*Trade

(EGRP)

recently agreed to acquire an

online bank and Schwab has launched a personalized site,

MySchwab

.

That's a start, analysts say, but for a firm like E*Trade, it's of dire importance to keep customer account numbers and assets up because earnings have been thin.

Bruce Olson, a portfolio manager and research analyst with

Strong Capital Management

in Milwaukee, says the market is excusing a lack of current earnings in return for larger customer bases. For instance, he doesn't expect E*Trade to book any earnings until the second quarter of next year. Olson is long E*Trade, which has been in the red for the last three quarters because of heavy advertising spending.

"Everyone is excited about the growth prospects," Olson says. But, he adds, it could be problematic "if you don't see a lot of growth in accounts and assets and see trading volume slow down."