Saturday, June 19, 2010

More Brokers Join Price-Cutting

It’s usually a good thing when an online brokerage gives its customers what they have asked for, especially when it comes to pricing.

In the latest case, Interactive Brokers (http://www.interactivebrokers.com) says it cut fees based on the buzz on its bulletin boards. Andrew Wilkinson, director of media communications, said he had “picked up on the thoughts of a customer wondering why IB’s futures commissions were as high as they were.” He passed the note on to the firm’s CEO, Thomas Peterffy, who subsequently cut IB’s commissions for U.S.-based futures and futures-options trading.

As a result, the two new fee plans for futures trading at IB include bundled, which cover all exchange and regulatory fees, and unbundled, a kind of à la carte menu in which fees are added to the basic transaction cost. Exchange and regulatory fees, as you would expect, depend on the trader’s membership status at the exchange where the trade occurs and the country in which it takes place. The array of fees can be bewildering, though a savvy trader who understands the details of the products can save money by choosing the unbundled plan.

The bundled commissions, as of mid-April, are 85 cents per contract, a significant decrease from the previous $1.24 to $3.75 per contract that IB reported for the Barron’s online-broker review in March. For those who would rather figure out the additional fees on their own, the volume-tiered unbundled plan now costs 25 cents to 85 cents per contract plus exchange, regulatory and carrying fees. Previously, the top commission was $1.25 per contract. Four price tiers based on monthly trading volume are available. Full details can be found at http://www.interactivebrokers.com/en/p.php?f=commission&p=f&p2=futures3#e; click on the “US Exchanges” tab.

Wilkinson says the tiered pricing structure for foreign futures and futures options has been simplified; it still looks fairly complex to me. Though I’m generally against tiered pricing structures, I understand that these prices are dictated by the exchanges rather than by IB’s policy. IB clients can trade equity, foreign exchange, fixed income, energy, metals and other commodities futures and futures options worldwide from a single account.

IB isn’t alone in attacking prices. Schwab, E*Trade and Fidelity have already reduced their trading costs. And now ING Direct’s ShareBuilder (http://www.sharebuilder.com) is cutting fees for real-time transactions for its Advantage customers, who pay a monthly subscription, to $7.95 from $9.95. ShareBuilder is designed to encourage regular investments; Advantage clients subscribe to the site’s services for $12 per month, which entitles them to make as many as 12 stock purchases in specific dollar amounts every month. For instance, you could set up a program in which you buy $100 of Apple (ticker: AAPL) stock every week, plus $250 of a favorite exchange-traded fund monthly. When you want to sell stock, you place a real-time trade.

ShareBuilder also has a pay-as-you-go pricing plan, Basic. Under this program, you pay $4 for each automatic investment and $9.95 for each real-time trade. The site offers a one-month free trial of the Advantage program to new customers. The firm eliminated a third pricing tier, and for that, hooray.

New tools of the trade:
TD Ameritrade (http://www.tdameritrade.com) clients who use the platform of its thinkorswim unit can now access an innovative trading simulator called thinkOnDemand. ThinkOnDemand lets investors replay a trade with tick-by-tick data, allowing them to review the conditions at the time of the transaction in slow motion.

The thinkorswim system from the TD Ameritrade trading platform enables thinkOnDemand to paper-trade stocks, futures, foreign exchange and options. Traders can select any date from the previous four months and replay, fast-forward and pause the archived market data. You can enter simulated trades and see the hypothetical results. It’s an extraordinary learning tool integrated with the live trading platform; we raved about its inclusion in the thinkorswim platform back in March.

TD Ameritrade clients who use the thinkorswim platform also have access to several other new tools, including Gadget 360, which displays complex options data in graphical form, the Market Cast squawk box with live discussion of market conditions, and additional charting, analytics, alerts and news.

Published in Barron’s, June 14, 2010. 

Posted by twcarey on 06/19 at 08:55 AM
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