Monday, November 07, 2005

Get With the Program

INTERACTIVE BROKERS (http://www.interactivebrokers.com),which we rated the best software-based broker this year ("Speed or Comfort,” March 7), didn’t earn that designation by resting on its laurels.

One interesting innovation the firm has pursued is a competition among current college students studying computer science and engineering, in order to promote technological innovation for trading platforms.

Interactive Brokers Group is sponsoring the IB College Trading Olympiad to highlight the growing need for computer science and engineering students in the financial industry. Students will compete by creating and implementing real-time program trading applications. Some 113 students will earn prizes ranging from $1,000 to $50,000, with a matching grant made to the sponsoring college for the top three prizewinners.

Students who apply for the Olympiad by Dec. 31, will put their systems to use by trading with $100,000 in phantom money, using the Interactive Brokers Trader Workstation (TWS) Application Program Interface (API). Various programming languages are allowed, including Java, C++, C, and Visual Basic.

“This competition is intended to promote technology, computer science and engineering,” says IB Managing Director Steve Sanders. “The students will be writing trading applications that could be used by any of the large firms on the Street.”

Trading for the 250 students accepted into the competition will start on Monday, Jan. 23, at 12:01 a.m. EST and run for 10 weeks until Friday, March 31, at 11:59 p.m. EST. The trades the students generate will not be executed, but using IB’s simulation engine, they will be filled against actual prices and sizes when the trade is entered.

“We figure a good way to encourage students to get involved in financial technology is to throw some money on the table and say, ‘Hey, there’s a shortage of good technology people in the trading industry,’ “ Sanders says. “If this competition turns out to be a success, I could see making this a yearly event.” He hopes universities will become involved, too, so they can qualify for the matching prizes. “We hope our grants to the universities won’t be just chump change for them, and will really stimulate competition.”

Sanders notes that the application deadline allows students to try writing trading programs that connect to TWS prior to signing up. “We’re giving everyone time to write their programs and test them out,” he says.

For non-propeller-heads, IB has spiffed up the creature comforts of its site, a welcome move since its trading application, the IB Trader Workstation, involves a rather steep learning curve.

A new portfolio-allocation scheme was introduced in early September, which lets customers examine their investments across product types (stocks, futures, forex, options, etc.) and around the world. “Advisers asked for this, and it lets them rework a client portfolio quickly,” says Sanders.

The firm has also beefed up its customer education considerably, and is offering dozens of “webinars.” Sanders says that many of these attract 1,000 or more customers. Most of the webinars begin at 4:30 p.m. Eastern time, and feature such topics as order types, volatility for options investors, and interactive analytics. Of interest to those considering entering the Olympiad, a webinar on Nov. 16 will cover the TWS Application Program Interface.

IB also rolled out several risk-analysis tools in its suite of interactive programs. Of particular note is the Value at Risk tool, which displays a trader’s risk across multiple asset classes using a series of tabbed pages. Each page shows a specific slice of the portfolio’s risk, sorted by position, various risk metrics and VAR. It also allows users to create hypothetical “what-if” scenarios by adding, removing and modifying contract positions.

The Value at Risk summary shows the greatest loss a portfolio could sustain over one day within a specified probability. This value is calculated three ways, and shows the user’s worst possible loss out to 4.5 standard deviations.

One pet peeve I’ve had about online broker services is the account statement. IB is testing out flex statements, which allow users to specify what they want to see and in what order they wish to see it. Since IB is self-clearing (account statements are generated by the clearing firm, not the brokerage), it can offer this amenity.

Last, but certainly not least, IB has cut its already low prices even further. Effective Nov. 1, commissions were reduced by 50% for U.S. equity trades and by 25% for U.S. option transactions. Equity commissions are now 0.5 cent per share, options are 75 cents per contract, and futures are 25 cents to $1.20 per contract, plus exchange fees. Spreads on currency trades on the euro versus the dollar will be 1 to 2 pips. (A pip is analogous to a basis point—1/100th of a percentage point.)

All trades carry a minimum charge of $1, which is considerably lower than most brokers’ minimums.

In late October, IB launched an ad campaign aimed at Refco customers, while simultaneously making a sizable bid for Refco’s remaining assets and customers. “Interactive Brokers is ready to offer Refco’s customers who trade futures and foreign exchange around the world the same market access they enjoyed with our competitor,” said Thomas Peterffy, chairman of Interactive Brokers Group (IBG), the parent company of IB and market-making firm Timber Hill. “We have a long-established presence in all the markets where Refco provided access.”

ONLINE BROKER NEWS: FOLIOfn (http://www.foliofn.com), which allows customers to trade baskets of stocks on a dollar basis, rather than a share basis, has added nine Mini-Folios to its list of Ready to Go Folios. A folio can hold 1 to 50 securities, but Ready to Go Folios generally have 20 to 30. Some folios focus on a particular sector or industry, while others are more broadly based. Users, who pay a monthly fee ranging from $19.95 per month to $39.95 per month, can customize any folio to meet specific preferences.

FOLIOfn’s pricing plans allow you to conduct as many as 600 trades during two daily transaction windows. You can treat each folio as a separate unit, distributing a specific dollar amount evenly across all the stocks in a folio, or sell a folio’s entire contents at once. You can also rebalance a folio with a few clicks of your mouse.

If you want to trade an individual stock outside the transaction windows, it will cost you just $3.95 per transaction—a low fee that the firm introduced in March. You have to be either a Silver ($29.95 per month) or Gold ($39.95 per month) member to take advantage of this pricing.

The Mini-Folios contain three to five exchange-traded funds, rather than the 20 to 30 in most of the other folios. Each represents a point in the risk spectrum. An online wizard helps customers choose the appropriate Mini-Folio. The folios can be bought (and periodically updated) with just a few mouse clicks.

Posted by twcarey on 11/07 at 05:59 PM
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