Saturday, February 11, 2012
Fidelity Amps Up Cross-Border Offerings
More countries for more customers: Fidelity frees up access to smaller investors, and adds access to new bourses and currencies.
Fidelity Investments has just expanded by five the number of foreign markets in which its customers can trade, for a total of 17. And it will be the first retail online broker to open up its entire cross-border menu to all non-retirement-account holders—formerly the preserve of only high-account-value customers and high-volume traders.
Other mainstream brokers, such as E*Trade (http://www.etrade.com) and Charles Schwab (http://www.schwab.com), give direct international-market access to a subset of their customers. TD Ameritrade (http://www.tdameritrade.com) allows limited access to Australian and Canadian markets.
Formerly at Fidelity (http://www.fidelity.com), only those with $1 million or more in their household accounts got access to international markets. Now, cross-border trading is open to all levels of brokerage customers.
THE NEW CROSS-BORDER VENUES are: Mexico, New Zealand, Singapore, Sweden and Switzerland, along with their associated currencies. That’s in addition to Australia, Canada, Hong Kong, Japan, Norway, the U.K., and six European countries: Belgium, France, Germany, Italy, the Netherlands and Portugal. And customers can now trade in 13 foreign currencies.
Jim Burton, president of Fidelity’s brokerage services, says of the expanded offerings, “I like to think of this as proof of our commitment to continuing to make user-friendly services available to people.”
Burton thinks that, in general, most investors should have 30% of their stock portfolio in international equities, in order to benefit from diversification and tap into growth advantages.
There are a number of ways to attain that 30%, such as exchange-traded funds (ETFs), mutual funds, and American depositary receipts (ADRs).
ETFs and mutual funds are, by far, the easiest ways to get into international markets. Many ETFs have the advantage of being optionable as well, allowing the investor to generate additional income through covered calls, among other strategies.
Access to ADRs can get tricky; although approximately 1,500 international firms have ADRs available for trading—mostly over the counter—not all brokerages allow access to all of them.
We’ve seen online brokers expand their international-trading capabilities significantly in the past few years. Interactive Brokers, which focuses on very active traders only, was the first major online retail broker to let its customers trade internationally, and still has the widest range of international offerings http://www.interactivebrokers.com).
Fidelity customers who hold non-retirement brokerage accounts can check out the international trading details by selecting “Accounts & Trade” on the top-level home-page menu, then click “International Trading” to see the offerings displayed. Click those you’re interested in, and you should get a message saying that your account is ready for international trading. Fidelity does require that you chat with one of its international trading specialists prior to placing your first international stock-trade or currency-exchange order, to see if you’ve understood the educational information on international trading and are aware of the risks.
So, once the switch is flipped, you can trade straight through to any of the 17 marketplaces, in either the local currency or in dollars.
If you prefer to use the local currency, Burton says you have a number of choices in foreign exchange. For example: If you want to trade on Mexico’s bourse, but you hold only dollars, you can convert some to pesos (fees are sliding-scale, and lower-percentage for bigger transactions) to make the trades, or just to hold the currency. Or if you want to buy one or two positions and don’t want to hold excess foreign currency, you can hold the position in dollars. When you exit the position, you can exit to dollars or hold pesos.
Fidelity’s international trading platform also lets you hold foreign currencies—even if you don’t trade in those markets. Unlike many forex brokerages, however, Fidelity doesn’t allow the use of leverage. That reduces your risk considerably—but also can dampen your gains. Says Fidelity’s Burton: “What you’re paying [for foreign-exchange transactions] is basically a fee, which we think is very reasonable, on top of the interbank rate.”
Costs range from about $14 to $40 per trade, net of currency exchange, depending on the market. Burton notes, “There’s a lot of plumbing here, so $14 to $40 is very reasonable, I think, for all the work to execute and settle a trade.” To keep trading costs down, he recommends limiting your number of currency conversions.
You’ll find a great deal of information about Fidelity’s international offering at http://www.fidelity.com/internationaltrading.
WE’VE SEEN LOTS OF INNOVATION from Barron’s 2011 online-broker survey winner, TradeStation (http://www.tradestation.com). And many of its new offerings appear to be aimed at the mainstream trading market.
We’ve long thought of TradeStation as a great place for very frequent traders to back-test their strategies on its huge database. Now, TradeStation is aiming to bring less-experienced traders into the fold without abandoning the needs of the established customer base. These projects include a first-time user’s walk-through on their recently (and now, seamlessly) redesigned Website, and one-on-one sessions with customer-service representatives who will help newbies use its extensive tool kit.
Another area where TradeStation has improved its offerings is in portfolio reporting. After acquiring the technology from Rina Systems in 2010, a new feature called Portfolio Maestro—a portfolio-testing and optimization tool—was launched. Portfolio Maestro considers the overall performance of all of your holdings across asset classes, and offers risk assessment and optimization to help you improve your game.
Most trading-strategy optimizers consider a single item at a time, such as a stock, an options strategy or a forex pair. Portfolio Maestro considers portfolio-wide constraints, such as funds committed to other investments, to help protect profits and limit downside risk. The resulting reports can be viewed in a variety of tabular or graphical formats. The goal of acquiring Portfolio Maestro and incorporating it into the TradeStation platform was to offer traders a realistic and complete perspective on their portfolios. It’s worth a look.
Published in Barron’s, February 6, 2012.