Saturday, June 11, 2011

A Crystal Ball for Online Trading

Online brokers predict traders will place buy and sell orders from almost anywhere on everything from the weather to world events. Puts on DNA cloning?

Ten or 15 years ago, it would have been difficult to fathom the range of products that retail investors can trade today. Back in the 1990s, few brokers allowed short selling, and none had yet enabled complex options trading. Fixed-income transactions took place over the phone.

So we challenged the trading community to predict what the retail investor would be able to trade in the next 10-15 years.

Steve Quirk, executive vice president of TD Ameritrade, believes that mobile trading will become the norm. He foresees mobile applications that allow you to trade with gestures rather than by pushing buttons, and relieves you of the need to sit down at a desk.

Quirk also believes there will be options that won’t require an assignment of stock upon expiration. In other words, traders will be able to bet on the direction of a stock price without having to buy or sell the underlying stock. He notes that most traders of weekly options aren’t interested in holding the stock–they’re simply using an alternate method of going long or short on a particular position.

Sean Belka, president of Fidelity’s Center for Applied Technology, mostly sees today’s big trends like mobile access expanding. Fidelity’s recent launch of an iPhone app that allows you to deposit a check into your account by taking a photo of it is a prime example, he says. Schwab launched a similar app on June 1.

Touch and gesture-based interfaces will become more prevalent, according to Belka. “The whole area of the keyboard and mouse will give way to other methods of access,” he says. Beyond that, Belka believes that retail investors will have more access to international markets and to alternate asset classes like commodities. “In 10-20 years, people will be able to develop more-diversified portfolios, and be able to access them in ways we can’t imagine yet.”

Brian Bachelier, Scottrade’s manager of options trading, projects says that “the future of trading will offer the retail client a ‘blended analysis’ of fundamental, technical, psychological and social analytic tools.” Steve Sanders of Interactive Brokers says, “My personal opinion is that the question will not be what will we be trading–but rather where will we be trading? The world is becoming less U.S.-centric and traders and investors will increasingly want to cheaply take advantage of opportunities anywhere around the globe.”

The future will be full of exchange-traded funds, says Mike Scanlin, CEO of Born To Sell, which helps investors find covered-call opportunities. He sees continued expansion into a variety of niches. “ETFs make it easy to bet on currencies, commodities, geographies, interest rates and industry sectors. They trade like stock so there are no weird permissions, settlement rules, or restrictions on when you can buy or sell.”

Offering a different perspective, Louis L. Straney of Santa Fe, N.M.-based Securities Fraud Research (http://www.securitiesfraudresearch.org) thinks that investors, despite the advances in technology, have a growing need for direct contact with a well-trained advisor at a well-supervised financial-services firm. “The first firm that recognizes that investors have lost confidence in the supermarket approach with commoditized products and services and builds a new model, will sweep the table,” Straney says.

Straney does agree with others that derivatives contracts will be launched that allow traders to speculate on everything from the weather to acts of war. “A trader might be able to go long Hamas, short al Qaeda, buy puts on DNA cloning, straddle the government of Libya or put on a Mossad time spread,” he says. “Where there is volatility, uncertainty, and the likelihood of disruption, derivative contracts soon develop.”

More education will be needed to operate in such a world. Recognia, which licenses its research tools to online brokers for use by their customers, recently surveyed the clients of two U.S.-based online brokers as well as one in the Far East. Education rated highly as the key to making profitable decisions. Recognia’s president, Peter Ashton, says what the survey showed was that very few online brokerage customers are happy with their brokers’ decision-making tools. Over a third of those surveyed wanted to learn new trading strategies, while nearly a quarter hoped to delve deeper into technical analysis. Another 18% were most interested in learning new ways to manage risk.

Survey respondents preferred Webinars and online videos, so Recognia has partnered with Martin Pring, an author, educator and analyst, to put together a program to address some of these concerns. It will offer video, slides and charts to its online-broker customers, who can then make them available to their clients. Expect to see this content in the fall of 2011.

Published in Barron’s, June 6, 2011. 

Posted by twcarey on 06/11 at 02:23 PM
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