Saturday, June 10, 2006

Nasdaq's Live Floor Show

THE NASDAQ IS MORE THAN JUST a high-tech all-electronic stock exchange.  Thanks to all the transactions processed on the board, it’s also a place that collects a great deal of data about price movements and volume. 

The NASDAQ now offers a variety of data products such as TotalView, which displays every quote and order at every price level on all Nasdaq National and Capital markets stocks available for execution at the Nasdaq Market Center. That way, traders get a better idea of what the actual market is for these stocks. Several online brokers, including Scottrade and a number who utilize the RealTick electronic trading platform, now offer TotalView to their customers. It is otherwise available for $70 a month for professionals and $14 per month for non-professionals.

To see what Nasdaq (ticker: NDAQ) has cooking, check out its experimental data page at http://emi.nasdaq.com. Its newest real-time offering is Market Velocity, which is designed to give investors who aren’t working on a live trading floor access to information that a floor trader could glean from the surrounding action, according to Nasdaq executive vice president Adena Friedman. Instead of hearing the buzz about a stock or seeing others gathered at a certain location on the floor, Market Velocity aggregates current arriving orders, and compares them to the average activity in that stock over the prior three months. As a result, a trader is alerted to shifts in market direction, momentum or liquidity in individual stocks that might suggest future price moves.

“We look at this particular point in time, relative to the base and see whether there is more activity or less, says Friedman. “It’s comparable to traders running around with tickets on the floor.”

Market Forces, another recent Nasdaq entry, breaks Market Velocity data up into buy or sell interest, which can suggest whether the heightened activity is about to move the stock price higher or lower. A real-time feed, Market Forces is most useful for frequent traders who focus on a particular set of stocks and want to know the intra-day dynamics of certain shares.

“This is the start of a new genre of market data that we’re creating,” says Friedman. “It’s meant to be more analytical in nature to take advantage of things coming in to our system that will help traders determine trends in stock pricing.” Both Market Velocity and Market Forces are part of Nasdaq’s Market Analytix data package.

Check with your data provider or online broker to see if they have Market Velocity or Market Forces available (they aren’t being offered independently by Nasdaq) and at what, if any, cost.

INTERACTIVE BROKERS (http://www.interactivebrokers.com) sponsored a Trading Olympiad for college students earlier this year ("Get With the Program,” Nov. 7, 2005) in an effort to identify some of the best and brightest up-and-coming techies.

Starting with an account of $100,000 in phantom money, University of Texas graduate student Patrick Christmas earned an additional $120,000 in 10 weeks using computer algorithms he developed for Interactive Brokers’ Trader Workstation Application Program Interface.

The victorious Christmas won a very real $50,000, which IB will match in a donation to his grad school in Austin. The electronic brokerage paid out a total of $307,000, including $1,000 each to 100 participants. “Anybody who entered and made a penny won $1,000,” says executive vice president Steve Sanders. To top it off, the company hired the fifth place winner, Li Zhiyan, of the University of Toronto.

Any IB customer can open a paper trading account and test to their heart’s content, says Sanders. “We simulate whether there would be a fill or not (whether an order would be filled), so when someone puts in a limit order we simulate the fill based on whether that price and volume were available,” Sander says. Recently, IB added all of its global products to the paper trading platform as well.

New features include Volatility Trader for options traders, and SpreadTrader for futures spread trades. More on these features in a future column.

JUST ARRIVED FROM optionsXpress (http://www.optionsxpress.com) is Xtend, which brings streaming quotes and many features of direct trading to the browser. To launch it, click on Streaming Quotes, then customize the screen to your specifications. Unlike many software-based trading applications that are stored on a single computer, this one allows the user to set up layouts that are accessible wherever he or she logs in.

Right-clicking on a bid or ask brings up a quick way to enter an order, displaying three prices near the market if you want to enter a limit order. Click on one of the prices to generate an order ticket. Options-spread information is built in, as is real-time futures pricing and order entry.

A trader can use some of the Xtend screens, plus favorites from the optionsXpress browser-based tools, such as StrategyScan and Dragon. “That’s why we call it Xtend—it extends your browser,” says optionsXpress President David Kalt.

Published in Barron’s, June 5, 2006.

Posted by twcarey on 06/10 at 01:04 PM
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