Monday, February 20, 2006

Seek And It Shall Find

IF YOU WANT SOMETHING DONE RIGHT, do it yourself: That credo led Pete Stolcers, formerly with Terra Nova Trading and now a professional trader, to come up with an interesting Website called OneOption (http://www.oneoption.com). Frustrated with existing investment-search technology, he hired a few programmers and created his own. He found that his technology generated too many trading ideas for one person to trade, so he decided to share it.

The site appears to be very simple to use, displaying the results of his searches in long lists of ticker symbols. His target user is a self-directed trader who is in the market at least twice a month and is willing to spend 15 to 30 minutes a day checking out opportunities. Stolcers uses this technology to trade 50 to 80 stock orders a day, and 2,000 options contracts.

The site presents the results of proprietary searches, which are designed to find short-term trading opportunities. The searches are organized according to four types: bullish versus bearish; time horizon of a day versus a week; price pattern displaying continuation or reversal; and confirmed-trade triggers versus early triggers. These patterns are combined into 16 different trading classes, such as Bullish-Weekly-Continuation-Confirmed (or BWCC).

Clicking on a symbol brings up a one-week chart; the user can pick a one-month or one-year chart if desired. The graphs, which are quickly displayed in a small box that overlays your main screen, are generated by Yahoo!.

The site is free through the end of February; in March, a charge of $7.95 to $12.95 per month will go into effect—depending on the level of service. The higher-priced versions include newsletters and additional search tools. OneOption provides some intriguing trading ideas for the day- or swing-trader; check it out.

WHILE THE DOLLAR’S STRENGTH CONTINUES to befuddle the experts, more currency-trading sites keep cropping up. The most recent to hit our radar is FX Solutions (http://www.fxsol.com), which has developed an automated trading system that maintains the spread between bid and ask at 3 pips (hundredths of a percentage point.)

What differentiates FX Solutions from many forex houses is that it doesn’t take the opposite side of its customer’s trade, a fairly common practice in the industry. Michael Cairns, FX Solutions’ head of trading, says, “Automation is a huge differentiator in the business, so customers can make sure brokers aren’t ripping off their customers. Most forex brokers trade against the customer since there’s no central book, like you’d find in equities trading.”

FX Solutions customers can define the size of the order they’ll place, and the amount of leverage they’ll use. Forex trading has become very popular with traders who are comfortable with a lot of risk, since they can trade up to 400 times the amount they’ve deposited. Risk management is a huge part of forex trading; and FX Solutions provides its customers tools that let them exit a position quickly if it’s turning against them.

As of early February, FX Solutions was allowing its customers to trade 20 currency pairs, 24 hours a day. The main screen displays the currency pairs available; entering a trade involves clicking on the side of the trade you want after predefining your standard order size. You can enter up to five stops to exit a trade—and in forex, it’s almost mandatory to set a stop-loss order when you enter a trade.

The platform includes technical charting and real-time data feeds. You can open an account with $250, or use the demo platform to get comfortable with the process before you start using real money.

FOLLOWING UP ON our tax-software column of last week, several TurboTax users let us know that the program has a limitation that affects very active traders. TurboTax can’t handle your Schedule D if the sum of all your transactions is $10,000,000 or more. There are also limitations to filing electronically if you have more than 200 transactions on your Schedule D.

WE’RE STILL BEING SWAMPED by e-mails about the Harrisdirect/E*Trade conversion problems. I’ve taken these complaints personally because most of the readers who wrote in hold me partially responsible for their experience. Back in 1999, DLJ Direct was the top broker in our annual roundup, and numerous readers opened accounts there as a result. When DLJ Direct became Harrisdirect, the changes were slight, and the transfer of accounts went smoothly.

Now they’re E*Trade customers, and they’re not very happy about it. Your intrepid columnist has spent a large chunk of the past month running down issues surrounding the conversion, many of which have been reported here. Our mailbox is still stuffed with complaints from former Harris customers who can’t figure out how to get a reasonable rate of return on their cash balances.

When I’ve shared those concerns with E*Trade officials, they’ve claimed that the new customers can get better rates of return on their cash and implied that the former Harrisdirect customers can’t easily figure that out. We apparently have a failure to communicate. Watch this space for updates.

Posted by twcarey on 02/20 at 05:48 PM
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Monday, February 13, 2006

Computing Your Taxes

Note:  This is a portion of the column that ran in Barron’s on February 13, 2006.  The original was co-authored by my Electronic Investor partner in crime, Kathy Yakal, but only my contribution is shown here.  Please reference the original to see Kathy’s thoughts on online tax prep sites.  She’s an insightful writer who also reviews financial software for PC Magazine. 

TAX-PREPARATION SEASON OUGHT TO BEGIN with a basic question: Should you do it yourself or hire the job out? If you feel that you’re educated enough on the ins and outs of filing your own return, with all the complications your life presents tax-wise, then pick up a copy of a tax-preparation program to help you out.

Filing a full 1040 long form by hand by yourself could qualify as proof of insanity, especially if you’ve done any substantial trading last year. Entering data on transactions—including dates, cost bases, sales prices—plus dividends and interest and then making the appropriate calculations by hand isn’t complicated, but it is extraordinarily and unnecessarily tedious. Plus, it all but invites errors on your returns.

If you have a relatively straightforward tax situation—salary, the typical deductions for mortgage interest and state and local taxes, plus simple investment returns—tax-software Websites should be able to handle your return without much complication. The program will ask you relevant questions; you fill in the answers as you go along. The interview process should cover most of the usual tax questions, and make suggestions along the way.

It’s not a substitute for a living, breathing professional if your tax situation isn’t pretty cut and dried. But if it is, it may be possible to download your relevant data—such as W-2s from your employer, 1099s from financial institutions, mortgage and property-tax-payment data from your bank—and let you computer do most of the work. If you prepared last year’s tax return on a computer, you can transfer basic data—name, address, Social Security number, dependents—into your new return, which also reduces the tedium. And if you’re organized and use personal-finance software, such as Intuit’s Quicken or Microsoft’s Money, the process can be further automated.

Tax software also can mitigate several other hassles of filing. If you are subject to the dreaded alternative minimum tax, the software will at least inform you of the bad news. Doing your taxes by hand may require a second set of calculations. If you’re subject to the AMT, it’s probably because you’re unlucky enough to live in a state with a hefty income tax, such as New York or California. The popular tax programs also have state versions, which take your federal data and prepare your state return with relatively little extra effort. Finally, tax programs can alert you to errors and omissions, and to situations that might invite an audit.

We took a look at the tax programs and online services available with an eye for how they’ll work for a relatively active investor. This year, we also looked at how the programs adapted to changes in the tax laws, as well as how they work for dealing with the home-office deduction.

The major names in tax-preparation software continue to be TurboTax, by Intuit, and TaxCut, by H&R Block. Both overhauled their interviews for the 2005 season; TurboTax’s was somewhat more successful; the program’s ease of use improved considerably.

TurboTax’s interview, which we reviewed using its Premier edition (list price $69.95, though many retailers throw in gift cards and other freebies), allows you to import data from financial institutions that use Intuit’s .OFX file. Importing data into TurboTax is an extremely smooth process, especially if you’ve got broadband Internet access. If your bank, broker or mutual fund is part of the network, as most major ones are, pulling in tax-related data is very easy. Many employers also are tapped into the network, either directly or via a processor such as ADP, allowing employees to import their W-2 data quickly and accurately.

We imported data from several brokerage accounts that have been supplied to us for our annual review of online brokers into TurboTax. One of our accounts has quite a few transactions in it, and TurboTax brought them all in flawlessly this time. We haven’t been as lucky in past years; this facilitated import is a huge improvement.

TaxCut doesn’t have the same import capability, however. You’ll manually enter all that data from those 1099 forms that your brokers have sent. We reviewed TaxCut Premium ($49.99 list, also with various goodies from major retailers), which includes H&R Block’s DeductionPro.

If you’re manually entering your stock transactions, be sure to use trade dates rather than settlement dates. If you sold a stock on Dec. 29, 2005, for instance, even though it didn’t settle until Jan. 2, 2006, it counts as a 2005 transaction. Most brokers send out a summary 1099, informing you of the proceeds from all of your transactions over the past year. You’ll need the detailed records of each transaction to be sure the dates and amounts are correct.

Both TurboTax and TaxCut did a good job of dealing with changes to individual-retirement-account contributions, and they examine whether you’re eligible for a Roth IRA rather than a traditional one. TaxCut’s extensive audio help points out that your traditional IRAs are exempt from bankruptcy filing, and encourages users to maximize their contributions, whether they’re deductible or not.

This year, TurboTax added quite a few ways to spend your refund, in the event you’ve given Uncle Sam an interest-free loan last year. You’ll be given the chance to purchase gift cards from a wide variety of retailers, at a discount, with your refund. We think a better use of your refund is to roll it into your IRA or other investment accounts.

If you’re new to tax software, TurboTax is the way to go. TaxCut users will be well-served by picking up the 2005 version unless you want to shift the data entry load over to your computer. (Either program lets you import data from the other’s preceding year’s return.) Check the TurboTax Website (http://www.turbotax.com) to see if your financial institutions are in its system.

FOR THE PERIPATETIC TRADER, neither TurboTax nor TaxCut will make the job of preparing your Schedule D easy, though. That’s where TradeLog and GTT TradeLog come in handy (http://www.armencomp.com). These programs, published by Armen Computing, help those who actively trade to generate portfolio-performance reports as well as prepare a Schedule D.

GTT TradeLog, which is supported by Green Trader Tax (http://www.greentradertax.com), is aimed at traders who need to track mark-to-market transactions. TradeLog is for all the other active traders. Prices range from $49 for a version that is restricted to 100 transactions, to $349 for the mark-to-market version.

The programs produce a file in TXF format that can be imported into TurboTax or TaxCut for preparing your entire return. We found that TurboTax handled the larger number of transactions more elegantly and with fewer errors.

Posted by twcarey on 02/13 at 05:49 PM
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Monday, February 06, 2006

Conversion Trouble Part 2

WHEN WE QUERY READERS each year about what they want in a broker, we typically get 100 or so thoughtful e-mails on the subject over the course of a few weeks. This year, we’ve already heard from several hundred of you on a combination of subjects: problems with the Harrisdirect conversion; the fears of BrownCo customers as they face their upcoming conversion; and wish lists of what Barron’s readers want from their online brokers.

Following our report two weeks ago about the problems E*Trade has had assimilating the Harrisdirect customers, our mailbox filled with new complaints, revealing new issues. Sitting on hold while waiting to talk to someone in customer service remains a major complaint, but another repeated by numerous correspondents involves the rates E*Trade pays for cash balances.

One reader reported that the rate he was getting for cash was one-quarter of what Harris had been paying, and was well below 1% annually. An official at E*Trade told us that Harrisdirect customers were mapped into various FDIC-insured or SIPC-covered products based on the cash balances held in their accounts. Customers were notified of the products they were mapped in December, and were also told they could change their sweep options at any time after they had been converted. With a sweep account, the brokerage makes short-term investments with idle balances.

Harrisdirect customers were also informed in their transition letters that they had additional options, and could change their default-account options after the conversion. For legal reasons, however, E*Trade could not automatically do this for them.

There’s a tool on the E*Trade brokerage site that advises customers where to put their cash, depending on the yield they’d like to achieve. But the customers have to take some action themselves and make the change. It’s not automatic.

Perhaps much of this communication got lost amid the holiday cards in December, as the cash-account conversion appears to have come as a surprise to quite a few Harris customers. One reader reported receiving two or three letters from E*Trade every week, and ignoring many of them since the first several missives were soliciting mortgage business. He now suspects some of the letters he tossed as junk probably contained important account-conversion information—but all the envelopes, even the ads for additional services, had the same printing on the outside.

Given the number of Barron’s readers who were taken by surprise by certain aspects of the Harris to E*Trade conversion, it appears that quite a few important messages got tossed in the rubbish because they looked like ads. BrownCo customers, don’t make the same mistake. And, everybody, keep those e-mails coming about your experiences and preferences regarding online brokers.

SPEAKING OF BROKERAGE integrations, Ameritrade (http://www.ameritrade.com) and TD Waterhouse (http://www.tdwaterhouse.com) closed their consolidation deal Jan. 25. The company is now called TD Ameritrade Holding and its shares trade under Ameritrade’s ticker symbol, AMTD.

Online-brokerage customers won’t notice any changes for several months. Although the takeover is complete from a financial standpoint, the two brokerages will continue to operate as separate entities through 2006. Katrina Becker, TD Ameritrade’s director of communications, says that the integration will take about 12 months. In the meantime, TD Waterhouse continues to solicit new customers. We will review the offerings separately in our online-broker review, even though the TD Waterhouse site will no longer exist in the 2007 review.

“Ameritrade will be the platform you’ll see once the consolidation is completed. We will begin integrating key tools from the TD Waterhouse platform later this year, and plan to complete the back-end conversion in 12 months,” Becker says. This process mirrors the Datek conversion, which significantly improved Ameritrade’s offerings for active traders.

TAX TIME IS COMING. From time to time, we are asked complicated questions about how to calculate the tax basis of a particular holding when there are takeovers, spinoffs, stock splits and reinvested dividends. Some of these actions can be very difficult to track down.

GainsKeeper, which a number of online brokers have adopted to help their customers track the tax consequences of their trades, just introduced BasisPro Cost Basis Analyzer, which can be used to generate the correct cost basis quickly. BasisPro uses a database of historical information for thousands of different securities to generate the correct cost basis.

BasisPro can be accessed directly through BasisPro’s Web interface (http://www.gkis.net/basispro), or via the Web portal of a retail broker-dealer that offers BasisPro to its clients. If a cost-basis inquiry is made that the BasisPro database can’t answer, GainsKeeper’s product-support staff will provide the requested cost-basis information for that specific security within 48 hours and update the BasisPro database accordingly.

More brokers are jumping on the GainsKeeper bandwagon. We expect several announcements shortly.

Posted by twcarey on 02/06 at 05:46 PM
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