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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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Saturday, October 26, 2013

Majoring in Money

A couple of Websites are aimed at raising the financial acumen of high-school students. How much do I have to make to afford that lifestyle?

Like most people in my profession, I’m an advocate of financial literacy. I believe the 2007-08 financial crisis would have been avoided—or at least less severe—if more people had understood what kind of collateral was backing too many mortgages and financial instruments.

That’s one of the reasons I was intrigued by Moneythink (moneythink.org).

The company’s mission is the expansion of economic opportunity in the U.S. by developing financial-literacy programs for urban youth. The aim is to educate every teenager in how to navigate the financial challenges of adult life. Moneythink has set up a program in which college volunteers mentor local youth, teaching them how to make and manage money. Among the colleges involved are U.C. Berkeley, Carnegie Mellon, and Rice.

The mentors teach their students about networking, budgeting, banking, investing, saving, and managing debt and government benefits. They work with small groups—at most five students—to encourage strong financial and career decision-making. Making use of pop culture to illustrate the upside of sound financial management and the downside of fiscal imprudence, the once-weekly sessions help students better understand the financial landscape so they can develop their own personal financial blueprint. It was created by Ted Gonder, Shashin Chokshi, and Greg Nance.

It’s a lofty aim, and financed by donors that include the Center for Financial Services Innovation and the Blackstone Charitable Foundation, the Website is definitely worth a look.

The late Muriel Siebert and I often discussed the financial-literacy program she developed for high-school students. It became part of New York City’s high-school curriculum, and Siebert worked to expand it nationally. The Jump$tart Coalition (jumpstart.org) has a map on its Website that shows financial-literacy education requirements by state. Only four, Utah, Missouri, Tennessee, and Virginia, require at least a semester course devoted to personal finance. Twenty others, including New York, require personal-finance instruction to be incorporated into other subjects. The other 26 states have no requirements.

Jump$tart has a terrific library of financial-literacy resources, many of which are free to teachers and caregivers. It also conducts a biennial survey; unfortunately, when last conducted in 2010, it demonstrated that graduating high-school seniors continue to struggle with the basics of financial literacy.

If you’ve got high school- or college-age offspring in your household, it would be of great benefit to them—and to you—to run them through Jump$tart’s Reality Check, which you can find under the Resources tab. It’s a short questionnaire that will tell you how much you would have to make per hour to support the lifestyle desired without going into debt. It’s a real eye-opener.

I have some informal personal experience here. I’m currently volunteering with a terrific, local (to me) organization called 10 Books A Home (10booksahome.org). I have an hour-long tutoring session each week with a preschool child from an underprivileged family that does not speak English at home. We read, play, and converse in English, and I often throw in money-related items. My learner’s mother told me recently that her child is looking at prices at the grocery store and suggesting less-expensive items. There may be a way you can help promote literacy in your neighborhood.

PRODIGIO/TRADEMONSTER: Earlier this month, tradeMonster (trademonster.com) announced that it has partnered with mPower, publisher of Prodigio, an analytical platform that allows you to back-test a trading system. We raved about Prodigio when it was introduced by thinkorswim (thinkorswim.com) several years ago. But when TD Ameritrade bought thinkorswim, Prodigio wasn’t folded in, and it initially planned a partnership with OptionsHouse. That agreement has since dissolved.

Among Prodigio’s features are strategy back-testing, pivot studies, pairs-trading functionality, and a complete charting package. You set up a strategy scan using drag-and-drop technology. Prodigio is capable of helping a trader develop and test strategies, and then set them up to automatically trade for you. Anyone putting Prodigio to use needs a very high level of financial literacy.

Published in Barron’s, October 21, 2013. 

Posted by twcarey on 10/26 at 12:13 PM
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Saturday, October 12, 2013

Nearly Limitless Options at TradeStation

The online broker introduces a new platform that allows subscribers to access its options trading system directly, bypassing the Web browser.

TradeStation, a sophisticated online broker appealing to the kinds of frequent traders who enjoy building their own high-powered systems utilizing lots of technical and fundamental analysis, has expanded its options capabilities. The interesting new platform is downloaded onto your computer, letting you access TradeStation’s options trading system directly and bypassing your Web browser.

One of the more intriguing tools on its options platform, OptionStation Pro, even allows you to change what the application looks like on your screen. An “appearance” tab is built in; clicking on it lets you access a variety of skins, or the graphical presentation, and fonts, allowing you to personalize the platform. You can make the letters bigger or adjust the color scheme to light blue on maroon if that pleases you.

Most options trading platforms have the Black-Scholes options pricing model built in, which when first published, legitimized the science behind options markets and led to a boom in trading. This pricing model was originally designed for European-style options, which can only be exercised on their expiration date. OptionStation Pro enables you to switch to the Bjerksund-Stensland option-pricing model, which is theoretically more accurate than Black-Scholes when it comes to American-style options. These options can be exercised on any trading day on or before expiry.

Black-Scholes calculations are in wide use among traders, mainly because they’re quicker to execute, but with the speed of today’s computers, you aren’t likely to notice a difference. So, you now have a choice of pricing models.

Another enhancement to the options pricing models is the automatic use of the 13-week Treasury bill rate (^IRX) rather than manual entry of an interest rate. TradeStation calls this feature “hands-free interest rate updates.”

The firm added what it refers to as the “SpreadMaster” feature. This allows you to create custom spreads in both theoretical and real positions using drag and drop functionality. If you have multiple spreads on the same underlying symbol, you could keep track of them in whatever configuration you want. If you have an iron condor, for example, which has four legs, you could break it up into two vertical spreads, which have two legs, and monitor each independently. You could also close the verticals separately.

SpreadMaster gives you a lot of control over how your options positions appear. You can set up theoretical spreads and drop them into your existing portfolio to assess the change in risk. You can also drop a theoretical spread into the order bar, execute it, and then drag and drop the components into the configuration you want. This is a very advanced options management tool, but one that should make creating and managing spreads much easier.

There were several changes to the OptionStation Pro order bar, including the automatic display of the estimated maximum risk and reward, as well as the estimated cost of the order and the theoretical profit and loss. If you set up an order that has the possibility of being rejected, you’ll see a message that prompts you to fix it before hitting the Place Order button.

If you want to roll a contract or spread with up to two legs to a future month, click on the position and then choose the new strike date and price. If you want to roll a four-legged spread, you’ll have to break it into two two-legged spreads and roll those; you can recombine the resulting positions into a four-legged spread if you want.

Janette Perez, TradeStation’s vice president of strategic relations, says, “We take you where you’re at when you come to TradeStation, and help you move forward.” She says the platform itself offers coaching to help you become a more sophisticated trader, intelligently guiding you towards the tools that let you make the trades you want.

The firm recently launched an iPad app as well as an Android tablet app; TradeStation was one of the last holdouts on the mobile front.

ANOTHER TYPE OF ONLINE TRADING: A couple of weeks ago, I made a quick visit to Chicago. While there, I was invited to appear on tastytrade.com, an online financial network, and had a great discussion about online trading with Tom Sosnoff and Tony Batista, tastytrade founders and former market makers. I stuck around and watched the guest who appeared after me, and was very intrigued by his Website, Raise.com.  (Click here to see the segment in which I appeared.)

George Bousis, the co-founder and CEO, has set up a site that allows people to trade gift cards. Did your Aunt Maude give you an Olive Garden card for your birthday that you don’t want? You can sell it on Raise.com though you’ll take a hit on the balance of 8-13%, according to the information displayed on its Olive Garden page. Raise.com takes a 15% commission on sales; if you as a buyer want a physical card, that will run you $1 per card. Electronic gift cards are free.

There are hundreds of gift cards for sale on the site, from Sears to Nike to Victoria’s Secret. It’s easy to search the cards available if you’re a buyer, and also pretty simple to place a card that you own on the market. Check it out.

Published in Barron’s, October 7, 2013. 

Posted by twcarey on 10/12 at 12:09 PM
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