Friday, December 24, 2010

A Peek at Schwab's New Trading Site

The giant broker is about to unveil an updated site for active traders. So how is it?

With close to eight million brokerage clients and $1.5 trillion in total customer assets, Charles Schwab is a huge online brokerage. Smaller firms can be nimbler, and focus on a niche, updating their electronic platforms almost constantly. It’s not that easy at Schwab, which has to meet a wide range of electronic-client needs. That’s why the Electronic Investor was pleased to get an exclusive sneak peek at the firm’s update, which should be available to its clients shortly.

The new trading platform is called StreetSmart Edge. Kelli Keough, vice president of Schwab’s Active Investor group, says the new setup will be the foundation of the firm’s continuing investment in this area. The application was created in-house using Windows Presentation Foundation, a programming model for developers. Once it’s released, it can be downloaded from the Schwab Website (—the beta version we tested was 28 megabytes—that runs on personal computes powered by Windows XP or newer operating systems, and Macs with the appropriate conversion software.

StreetSmart Edge carries over many of the real-time tools built into Street-Smart Pro, Schwab’s long-time frequent- trader site, but is a much more elegant and approachable design. Like many newer frequent-trader applications, the program allows you to build your own lineup of tools. There are several layouts built in, but it’s simple to move the windows around, spread them across multiple monitors, and customize the view extensively. The gamelike feel of the previous version is gone, replaced by one that’s all business. Tools are more accessible, and you aren’t dumped into a browser for tasks such as checking balances or realized gains or losses.

An application for frequent traders has to have real-time data available so that they can see exactly what’s going on in the market and what’s happening to their own portfolios. It also requires an order ticket that can be accessed from anywhere, allowing you to place orders no matter which tools you’re using. Street-Smart Edge fulfills these needs with a bar at the top of the screen displaying current balances (which can be quickly hidden if necessary), plus an order ticket built into the Symbol Hub, one of the key components of the platform.

The Symbol Hub displays a customizable chart of prices and volumes for specific stocks, Level II quotes indicating the depth of the market at various bid and offer prices and current news for the ticker symbol you’ve chosen. You can switch tickers quickly from a watch list or your open positions. The platform currently allows you to trade stocks and exchange-traded funds and options; Schwab plans to add a Web browser tool to the program next year that will link to an upcoming futures-trading application.

If you’re viewing a particular ticker, say Apple (ticker: AAPL), and you have a position open, you’ll see a small tile with a P on it. If you have an order open, you’ll see a small O. These little bits of information are very helpful for frequent traders.

Erik Cottrell, director of product management and business development for Schwab’s Active Investor unit, says the aim is consistency throughout the application, so that no matter which window you have open, the commands work the same. For instance, clicking on an “Actions” button opens a menu, and clicking on the down arrow expands the line of data (such as an options chain) that you’re looking at.

The whole charting function is a big improvement over StreetSmart Pro. You can view any range of dates using the slider bar at the bottom of the chart, and overlay the charts with a wide variety of technical tools and trend lines. One new feature we find extremely useful is the ability to extend a trend line into the future.

There are built-in screeners that help you select the stocks and options meeting your trading criteria; however, they were limited in the beta test that we used. You will be able to save the output of a screen to a watch list, and scroll through those symbols in the Symbol Hub for further review.

Options traders will be able to look at either basic or theoretical options chains, and can flip between the two with a mouse click. Adjustments to a stock, like, say, the recent spinoff of AOL (AOL) from Time Warner (TWX) would be displayed in advance. All expire dates, including weekly and quarterly options, are also available.

The order-entry ticket lets you flip between stock/ETF selections to options and contingent orders. We entered a variety of orders, from simple exchange-traded fund trades to covered calls to four-legged spreads, and found the order-entry screen informative. When we made mistakes on purpose to test it out, it flagged them immediately.

Certain tools, including Recognia, which lets you do extensive technical analysis and back-testing of trading strategies, will be available via a built-in browser once the platform goes live. We weren’t able to test that capability in the beta form.

Schwab is clearly on the right development track, although it’s still in its toddler stage. We’ll be interested in seeing how it looks as the firm continues to add to its capabilities. It’s not a flashy, constant light parade, like thinkorswim’s applications. However, it compares favorably in ease of use to Interactive Brokers and TradeStation platforms. Certain functions—like futures trading, once it’s available—will happen in an integrated browser window, rather than in Street-Smart Edge, which I think is a drawback.

I would like to see some of the features in StreetSmart Edge, especially the enhanced charting and customizable real-time portfolio analysis, find their way into Schwab’s Web platform in the not-too-distant future.

AS WE DRAW CLOSER TO Barron’s 2011 online-brokerage review in March (our 16th annual update), we’re interested in hearing how your trading habits have changed in the last couple of years. What features are important to you now? Are you part of the growth in futures, foreign currency or exchange-traded fund markets? Do you have any concerns about the new cost-basis regulations from the Internal Revenue Service? What broker price structure works best for you? Let us know your thoughts at .

Published in Barron’s, December 20, 2010. 

Posted by twcarey on 12/24 at 12:43 PM
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Saturday, December 04, 2010

New IRS Rules for 2011

After years of talk, the Internal Revenue Service recently took some action. It released its final cost-basis regulations that will go into effect on New Year’s Day.

Under the current system, your broker reports the total proceeds from sales of securities to the IRS, but you are responsible for calculating the cost basis; any gains are subject to taxation. Now, in a bid to avoid creative accounting by investors, brokers will report the cost basis as well as the total proceeds to the IRS.

The first phase of the regulations covers stocks purchased after Jan. 1, 2011. For 2012, brokers will have to report similar information about mutual-fund sales and, in 2013, the program will be expanded to options and fixed-income. Current rules will apply to purchases prior to Jan. 1.

Several firms have been working to provide brokers with software to help them manage the complexities of cost-basis reporting. Scivantage (, publisher of Maxit, and Wolters-Kluwer, publisher of GainsKeeper (, both offer brokerage firms a suite of back-office solutions.

Joe Stensland, Scivantage’s senior vice president of product management and marketing, believes that the new regulations offer brokers the chance to offer an added client service. “They can’t avoid supporting cost-basis reporting any more; once you consider the tax impact of a transaction on an account, it gives you another bit of customer service you can provide,” he says.

Scivantage recently launched a portfolio rebalancing module aimed at financial advisors, who can use it to monitor client assets for so-called portfolio drift, or unintended shift in its asset allocations away from its targets. The module, installed in the Scivantage Professional system, will use some of the same data on securities purchases and sales that’s needed to generate the cost-basis figures.

Stensland says Scivantage will add this module to its self-directed platform in mid-2011, making it available to online brokers who have its tax accounting and portfolio management software, Maxit. He notes, “The focus of a lot of the online brokerage firms has been on trading, but as an increasing number of investors move their nest egg to self-directed accounts, this is one of the services they’ll have to have.”

We’ve been keeping an eye on the capital-gains reporting capabilities of online brokers for the past 15 years, and see these new regulations as a terrific opportunity. Uncle Sam, in trying to chase down revenue that may have previously escaped his grasp, is about to implement regulations that will unintentionally provide investors with better portfolio management tools. Go figure.

IN ANOTHER SIGN OF HOW hot precious metals are, E*Trade ( added the NYSE Liffe U.S. 33.2-ounce minisize gold and 1,000-ounce minisize silver contracts to its futures-trading offerings. E*Trade’s customers can trade more than 200 products spanning agricultural commodities, currencies, energy, indexes, and metals. The firm already handles 100-ounce gold futures, 1,000-ounce minisize and 5,000-ounce silver futures as well as options on gold and silver futures.

E*Trade’s futures customers use a separate platform, TT_Trader, which allows access to every major futures exchange. The platform features customizable layouts, one-click order entry, and multiple-order types to manage risk (such as trailing stops). Transaction fees are $2.99 per contract (plus exchange fees, which typically add 2 to 10 cents to the commission), though for the first 90 days after opening a futures account, E*Trade charges 99 cents per contract.

The online broker has added futures education topics to its Investor Education Days; the first, featuring NYSE Euronext product experts, will be held Saturday, Dec. 11 in Philadelphia.

AND IT ISN’T JUST PRECIOUS METALS, as futures trading generally has been on the rise this year. To help you along, optionsXpress ( recently added Chart Patterns to its futures platform. This function helps find and interpret key technical events in the markets, to suggest where prices may be headed and how long they may take to get there. This feature has been used by stock and options traders at optionsXpress for several years. It lets you select several technical or fundamental indicators that can narrow down your universe of investing possibilities.

Published in Barron’s, December 6, 2010. 

Posted by twcarey on 12/04 at 11:52 AM
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