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Saturday, December 21, 2013

Holiday Gifts from Fidelity and TD Ameritrade

Toys for online traders in options, stocks and ETFs.

Fidelity and TD Ameritrade have added a few holiday goodies for their electronic clientele over the last six weeks. Both firms enhanced their features for options traders, but stock and exchange-traded fund investors got a little something, too.

In a recent meeting with Barron’s, Ram Subramaniam, president of Fidelity‘s retail brokerage and cash management businesses, explains that updates to the firm’s services are all designed to add value in some way. For instance, the mutual-fund giant’s in-house order routing system has amped up price improvement to an average of $5.32 per 1,000 share order, for which traders pay a $7.95 commission. Over the course of 2013, Fidelity has offered 76 ETFs, provided by iShares and Fidelity, that can be traded commission-free (as long as they are held for at least 30 days).

Active traders at Fidelity utilizing their Active Trader Pro platform (activetraderpro.com, or launch from within the Fidelity Website) will be able to use new options analytic tools, which include idea generation and live scanning. There are a variety of pre-defined options scans built in to the active trading platform, but for now, to run a custom scan you have to use the tools at fidelity.com. A new probability calculator lets you evaluate a variety of potential trades, and a flexible profit and loss calculator enables a trader to create synthetic positions that show a potential trade’s effect on her overall portfolio.

Additional tools for Active Trader Pro users include a new multiple-order trade ticket, which allows you to cue up to 50 orders, which you can activate whenever you wish. These orders are stored on Fidelity’s server rather than on your local computer, so you can access them whether you are using the Web-based version of the active trading platform, or the downloadable software. Traders can choose whatever order-routing method they prefer, or default to Fidelity’s designated liquidity manager for access to a variety of routes, including dark pools.

For those who are shorting stock, the process of finding shares to borrow has become fully automated this fall at Fidelity, so you can sort through the shares available, and understand in advance what fees might be levied. An icon indicating a stock is hard to borrow makes those easy to spot. Previously you had to contact a human to short most stocks.

Education has been a point of emphasis for Fidelity. An initiative open to everyone, whether a Fidelity customer or not, is Fidelity Labs (fidelitylabs.com), which has an online investing game called “Beat the Benchmark.” The game, now in Beta test, challenges novice investors to allocate assets in ways that will outperform a randomly chosen benchmark. As players advance, competing to “beat the benchmark,” each new stage introduces additional tools and potential investments.

“We’ve known for years that gaming could play a part in helping investors learn, and could potentially lead to better investment outcomes. By developing a game based primarily on feedback from novice investors, our goal is to co-develop the future of online investing education,” says Sean Belka, senior vice president and director of the Fidelity Center for Applied Technology, via e-mail. Belka notes that consumers have been involved in the development process, and their feedback will be used for incremental improvements. Check it out.

TD Ameritrade has added several tools to its Website that allow clients to manage a variety of real-time tasks on a single screen. “My Dock,” the biggest of the enhancements, permits users to tailor their experience by choosing between different trading and investing modules. You can create up to four columns of streaming data, including balances, watch lists, and news. The new account-overview page displays balances and positions with additional room for market news and alerts. Making it easy to navigate anywhere on the site in one click is the new Rollover menu, which is a welcome touch for a site that was getting more and more complicated.

An enhanced order entry ticket, called SnapTicket, can be set up so that it is displayed wherever you are on the TD Ameritrade Website, allowing you to keep an eye on your open orders. The One Stop Search feature enables you to look for anything you might want on the Website—symbols, keywords, research features, etc.—from a single location. These are all welcome creature comforts.

Charles Schwab has announced an “accountability guarantee,” which refunds the fee you have paid for advisory services if you’re unhappy with the service received in the prior quarter. This guarantee applies to Schwab Managed Portfolios, Schwab Private Client and Managed Account Connection accounts managed by investment advisors affiliated with Charles Schwab & Co., Charles Schwab Investment Management, Windhaven Investment Management, and ThomasPartners. Program fees are typically a percentage of the assets in your account, and the guarantee is in place to make sure you’re getting value for your money.

Our 19th annual review of online brokers is in the works. What is working for you with your online broker, and what is driving you crazy? Let us know at electronicinvestor@yahoo.com .

Published on Barron’s Online, December 16, 2013. 

Posted by twcarey on 12/21 at 04:10 PM
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Saturday, November 30, 2013

How To Make Dough

The creator of thinkorswim and tastytrade has created a new visual trading platform. We signed on for the beta test.

Tom Sosnoff can’t seem to sit still. The creator of the thinkorswim trading platform and the tastytrade Web-based financial video network is now testing a new visual trading platform called dough. The Electronic Investor signed on as one of several thousand tire kickers and recently had a chance to review the site. Here are our thoughts.

Dough acts as an analytical platform, helping you find profitable trades. It has six modules: a trading panel, a monitor of other traders, portfolio analysis, the Grid (which tracks stocks), an activity summary, and a trading journal. The interface guides you through constructing a trade, and is designed to show you the effect a trade will have on your portfolio. “We designed dough to put the fun and the challenge back into finance. Regardless of age and domain experience, dough engages through investible content,” says Sosnoff.

The interface looks like an iPad app in portrait mode. Buttons along the top of the screen let you choose from a variety of options strategies; setting up a stock trade is also possible. You can design a strategy yourself by dragging and dropping icons shaped like shields, which represent stocks, calls, or puts. Options are displayed with strike prices on the horizontal axis, and expiration dates along the vertical axis. As you build an order, one of dough’s key features comes into play: the probability of profit. You can adjust the order by, say, widening the spread on this screen, and the updated probability is displayed. Once you have an order you’d like to execute, pressing the Confirm button generates a text description.

The dough platform also connects to the live broadcast of tastytrade, as well as instructional videos about trading called doughtv. A group of traders (including Sosnoff) is displayed on the opening screen; you can follow one or more of them and see exactly what they’re trading. Each trader’s current return on capital and probability of profit is prominently displayed.

The Grid is a series of color-coded tiles that help you monitor the stocks in which you’re interested. You can add symbols to the Grid and manage a variety of watch lists. Each tile displays the current price, whether the most recent tick was up or down, and the net change in value for the day. The color of the tile—green for rising prices and red for declining ones—allows you to track your stocks.

There’s a circle in the middle of each tile that represents the stock’s volatility compared with its historical range. A nearly full circle indicates that volatility is high, which means that the stock’s price could change dramatically in a short period of time. A nearly empty circle means that its value is not expected to fluctuate wildly but rather shift gradually over time. Dough recommends that you look for stocks at the extremes of their volatility range to get the most out of price changes; the display lets you quickly scan for nearly full or nearly empty circles.

THE TRADING JOURNAL is a slick way to monitor your ideas and orders, and lets you store screen shots of your trades along with market data.

If you have a TD Ameritrade brokerage account, you can execute trades from dough; if you trade elsewhere, you can enter your trades manually. You can open a TD Ameritrade account from within dough and receive commission-free trades for 60 days. (TD Ameritrade purchased Sosnoff’s thinkorswim electronic brokerage in 2009, and the two retain close ties.) There could be other broker links in the future. Dough will be free once it’s fully up and running.

A recent show on tastytrade, which broadcasts eight hours of live programming every weekday beginning at 7 a.m. Central (the firm is based in Chicago), features Sosnoff’s daughter, Case, the business team’s director of Website development. She hosts Where Do I Start?—an entertaining way to learn about trading strategies as she peppers her father with questions that range from technical tips to musings about his sanity.

Case also represents dough’s target audience—who are tech savvy but still learning about investing. With its highly visual, almost gamelike, interface, dough could be the sort of tool that brings in newly minted options traders.

We found it to be a well-designed application that provides several unique tools. You can weigh in with your own beta test at dough.com.

Published in Barron’s, November 24, 2013. 

Posted by twcarey on 11/30 at 03:26 AM
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Saturday, November 16, 2013

How Fast Is Your Online Broker?

In light of the troubles with Obamacare’s Website, it seemed like a good time to send 12 online brokers in for a performance checkup.

Health-care officials responsible for the Website of the Affordable Care Act, aka Obamacare, could take a lesson or two from online brokers.

Given the inundation of reports about healthcare.gov’s tardiness, it seemed like a good time to call in Compuware APM Benchmarks, which provides online performance data, to give 12 online-broker sites a six-month checkup. Compuware ranked the firms in order of speed for placing a trade and the time it takes to load the site’s home page. This differs from Barron’s annual ranking, which assesses quality of the overall trading experience; our normal review looks at direct-access brokers as well as Web-based brokers.

Scottrade, TD Ameritrade, and Fidelity were the winners for speed in executing a script that places an order. Lagging were Firstrade, TradeKing, and Vanguard. Compuware considers a time of five seconds or fewer to be outstanding; the industry average was 7.74 seconds in this assessment. The fastest order-generation time was 2.84 seconds, measured at Scottrade, while Firstrade’s response time was a leisurely 30.8 seconds.

Fidelity’s home page loads the fastest, followed by e*Trade and optionsXpress. Firstrade and Vanguard are low on the list, as are Scottrade and TD Ameritrade, despite their fast order-entry systems.

It’s not surprising to see Fidelity’s name atop these lists, as it has been investing heavily to make its Website faster and easier to use. “Fidelity’s Web team measures resource consumption of components, processes and latency at measurable points in the systems, and we identify application bottlenecks to improve application performance,” says Richard Blunck, an executive vice president for digital distribution. Fidelity, he says, avoids any change unless it improves performance.

Some of those that finished lower on the rankings made note of possible impediments. Don Montanaro, TradeKing’s CEO, says security technology designed to thwart network attacks can slow systems, or a script can get hung up waiting for a trading password. And firms such as Vanguard likely haven’t made Web speed a big priority, because they emphasize long-term investments and low costs.

COMPUWARE MEASURED THE DAILY technical performance of the Websites and averaged the results over six months, from April through September 2013. Tests were run from 12 geographically dispersed data centers across multiple network providers within the U.S. at regular 30- or 60-minute intervals each business day. The results shown in the two tables below indicate the Websites’ performance over time.

Compuware uses three metrics: Response time measures how long it takes to load a page, in seconds (lower is better); availability assesses by percent how often the site is able to complete a transaction (the closer to 100% the better); and consistency tracks how the response time varies over many visits, shown in seconds (lower is better). The consistency figure is simply the standard deviation, a statistical measure. Compuware collates the three metrics into an overall ranking. Simply put, a Website must do well on all metrics to achieve a high ranking.

Technical performance is very important to active online traders, who want to use every second to get the best price or to exit a collapsing position. Compuware surveys showed that 65% of consumers who have bought or sold a stock online have experienced a problem during a peak period, and 44% of them would switch to a competitor if not satisfied with their current provider’s Website. Speed and reliability are key components of customer satisfaction.

Steven Dykstra, senior product manager for Compuware, says brokerage Websites have much better technical performance than their counterparts at other businesses it tracks, such as retail, media, and travel outfits. It’s clear that Fidelity and Scottrade have invested in online performance.

The average availability of the 12 Websites is quite high, though Compuware notes that the site with the lowest availability, Firstrade, was unavailable 1.1% of the time, or four days a year. The firm didn’t respond to calls for comment.

“While most brokerages seem to have figured out how to make home pages fast, a few really lag on investors’ ability to complete a simple transaction,” says Dykstra.

Compuware sent the Obama administration its own “get well” recommendations after reviewing healthcare.gov: Health officials should follow many of the standard practices of online brokers, such as compressing images to save on network bandwidth, and speeding up execution by trimming the number of elements in use on a page. Speed and availability make customers—and constituents—happy.

And Now for the Winners

Scottrade can generate an order in under three seconds, with TD Ameritrade and Fidelity not far behind. On the opposite end is Firstrade, whose system takes nearly 31 seconds. Fidelity opens to its home page in about a half-second; Firstrade is much faster here, but still last.

Fastest to Generate an order
Average Average Average
Overall Response Availability Consistency
Rank Participant (seconds) (%) (seconds)
1 Scottrade 2.837 99.97% 1.435
2 TD Ameritrade 3.767 99.97 1.690
3 Fidelity 4.031 99.91 2.179
4 e*Trade 4.480 99.87 2.193
5 Charles Schwab 4.698 99.86 2.742
6 Merrill Lynch 5.582 99.84 2.858
7 Muriel Siebert 9.052 99.79 2.894
7 optionsXpress 9.063 99.71 3.048
9 Wells Fargo 12.015 99.61 3.759
10 Vanguard 14.844 99.47 4.504
11 TradeKing 15.143 99.23 4.891
12 Firstrade 30.796 98.87 5.245
Fastest to open its Home page
Overall Average Response Average Availability Average Consistency
Rank Participant (seconds) (%) (seconds)
1 Fidelity 0.545 99.96% 1.435
2 e*Trade 0.845 99.92 1.690
2 optionsXpress 1.342 99.92 2.179
4 Merrill Lynch 1.632 99.92 2.193
4 Wells Fargo 1.908 99.86 2.742
6 Charles Schwab 2.023 99.85 2.858
6 Muriel Siebert 2.836 99.84 2.894
8 TradeKing 3.029 99.84 3.048
9 Scottrade 3.756 99.83 3.759
10 Vanguard 3.869 99.78 4.504
11 TD Ameritrade 4.311 99.68 4.891
12 Firstrade 4.745 99.67 5.245

Source: Compuware APM Benchmarks

Published in Barron’s, November 11, 2013. 

Posted by twcarey on 11/16 at 03:21 AM
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