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Friday, March 16, 2012

Scoring Rubric for the 2012 Online Broker Review

We Ranked Our 27 Brokers Using the Following Measures

Trading Technology: This category represents the overall workflow for placing an order as well as the order routing technology.

We evaluated the quality of the data available prior to placing an order with an emphasis on streaming real-time data. A real-time quote that is displayed without any additional user input (such as typing the symbol into a separate box or hitting a “Quote” button) receives credit here; if the trader has to make a duplicate entry of the ticker symbol to get a quote, the broker got zero. We checked out the ways a trader is told that an order is executed, such as pop-up notices or an order status screen that is updated when the order fills.

We looked for prefilled order tickets when selling a position, which eliminates possible errors during the closing process. We also evaluated the options order entry process, as well as mutual-fund, bond, and (when available) futures, commodities and foreign-exchange order-entry screens. Methods for placing conditional orders, such as one-cancels-another or one-triggers-another, were checked out.

The availability of price-improvement strategies and smart-order routing technology (which finds the best bid or offer) are necessary to earn top ratings in this category. We asked whether a broker’s order routing engine used a spray or sequential engine; spray routing contacts multiple venues simultaneously and are less inclined to execute orders via routes that offer payment for order flow. Brokers offering price improvement—a sale above the bid price, a buy below the offer—received a fraction of a point depending on the portion of their transactions that benefited.

Top marks were earned by brokers who offered a wide array of order types, including conditional orders, and had spray order routing technology. The ability to place a trade from a graph earned a fraction of a point. In addition, we looked for ways to customize the trading experience, such as setting a default number of shares or contracts, to speed order entry. The order entry-and-execution process must flow easily from one step to the next, with streaming real-time information (including buying power and margin balance) available when needed.

Usability: A 5 here means the site or program was easy to use and well-designed, didn’t bog down when moving from screen to screen, and can be tailored to the user’s needs. We looked at how easy it is to get started on the platform or website as a new customer. Constant availability of a trading ticket, and easy access to research and account status data is key. Being able to easily switch from one area of the website or program to another is important here, as are customization options.

Mobile: A differentiator this year is the availability and quality of mobile trading and account data. We looked for streaming real-time data, including charting and news. We looked for ways to trade stock and options on your tablet or smart phone. Cross-platform integration is key; when you set up a watchlist on your desktop, it should be available on your mobile device as well. We also considered the workflow for placing an order and managing an account. To earn a 5 in this category, a broker must offer the ability to place complex options transactions and conditional orders, and be able to share watchlists and trade ideas with the customer’s desktop or Web-based offering.

Range of Offerings: We awarded points for the diversity of investments that can be traded online, with partial points given for those that can only be traded offline. Since long and short stock-trading, as well as single-leg options orders are now standard, we don’t award points for those transactions. We asked brokers how many stocks, on average, their customers can sell short, and awarded up to a half-point based on their answer. Complex options trading, and the availability of mutual funds, bonds, futures, commodities and international trading were also considered. A 5 in this category means you can execute all of these transactions online.

Research Amenities: This category measures the quality and accessibility of research, quotes and charting. We looked for research, news and charting linked to a customer’s portfolio and watch lists; the quality of third-party research and its integration with the rest of the site; and the availability of screeners, with special emphasis on options-strategy screeners. Brokers also won points for offering real-time streaming quotes at no additional cost, powerful charting capabilities, and Level II quotes. Partial credit was awarded for features that generated an extra fee.

Portfolio Analysis and Reports: The emphasis here is on clearly laid-out reports, updated in real time, showing current balances, positions and margin status. Portfolio-analysis reports, with links to news and research, as well as extensive transaction history, are most desirable. Tax reporting also falls in this category. Full credit is given for reports that can be created on the broker’s website, with no additional fees or data entry required. Partial credit is awarded to brokers that populate services such as GainsKeeper and Maxit (tax analysis and reporting programs) for an additional fee.

Customer Service and Education: We sized up online help such as live-chat capability, user guides and frequently-asked-question files. Offline help was assessed by making calls to customer service, and weighing the brokers’ reports of the average time spent on hold when a customer calls in. We took a look at the education offerings, both online and live. The ability to visit a broker in person, and to access the account via a mobile device, is taken into account here.

Costs: We looked at commissions for stock and options trades and margin interest rates, giving more points for lower costs. We scaled the points awarded so that the lowest costs in the group earned the maximum number of points, with fractions (and occasional zeros) given to the more expensive brokers. Stock and options commissions are the biggest factor here, but mutual-fund and other transaction fees are also considered. A 5 could be earned here by very low stock and mutual-fund commissions, $4 or less for 10 options contracts, margin interest rates below 2%, and no account-maintenance fees.

Sidebar to Survey of Online Brokers, published in Barron’s Online, March 10, 2012. 

Posted by twcarey on 03/16 at 03:13 PM
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Saturday, March 03, 2012

Shopping for Stocks

TD Ameritrade now lets you photograph possible stock picks while you pick up groceries. Plus, a new site for videogame fans.

Online brokers just keep pushing the envelope.

TD Ameritrade ( has just added a feature called Snapstock to its mobile application, intended to give you financial information about items you see when you’re at the grocery store or the mall. Snapstock lets you use your iPhone or Android phone’s camera to scan a barcode off a retail product, and then get a quote on the producing company’s stock, if it’s publicly traded. You’ll find the Snapstock function in the quotes section of the mobile app; click on the camera icon and point it at a barcode.

Nicole Sherrod, managing director of TD Ameritrade’s trader group, notes, “Investors tend to use our mobile-trading platforms more for opening transactions than for closing ones. Because of this fact, we sought to integrate innovative new features while helping support our investors’ desire to always be on the lookout for opportunities no matter where they are—the drugstore, the mall, or the market.”

We’ve seen mobile apps use the built-in smartphone camera for depositing checks; now the camera can also be used to help generate trading ideas. The quote detail generated by Snapstock contains links that allow you to put the stock on a watch list, or place a trade. You can also check out recent news, examine a chart, or delve into options chains.

This feature lets you think about trading while you’re shopping for items for dinner, a cold remedy, or a new pair of shoes. It could make that next trip to the mall much more interesting.

THERE’S A NEWCOMER to the list of online brokers: Kapitall Generation ( opened its virtual doors to the public in late January, bringing a unique look and feel to investing. The site offers a game-like view of investing, with all activity taking place on what the founders call “the playground.” CEO Gaspard de Dreuzy is a veteran of game production and development while creative director Cordell Ratzlaff spent time at Apple leading its Human Interface Group. So their front end looks very little like other online brokerage sites and services we’ve been reviewing for the past two decades.

De Dreuzy says, “We believe that all existing online brokers are very focused on the more sophisticated and mature online traders, but the rest of us need a brokerage platform like Kapitall that delivers a superior user experience.” He likens the Kapitall platform to the Sony Wii, which was a less powerful gaming system than others but transformed the industry due to its ease of use. “We are trying to be the Wii and iPhone of investing,” de Dreuzy notes.

We must, however, admit to a negative reaction to the name of the newly-launched online broker. Ratzlaff says that the name was a place-holder during the site’s build-out phase, but it seems to have stuck. We’re not sure what something that conjures Karl Marx’s “Das Kapital” has to do with capitalistic investing and trading. But we digress.

The site was launched as a Web application to help investors explore their ideas, but recently became a broker/dealer and attached a trade execution engine to its front-end. Currently you can only buy and sell stocks in a cash account at Kapitall, but there are plans to add trading on margin and options transactions later in the year. There are also plans to roll out an iPad app by summer. It’s now in beta test.

When you first log in, you go through a quick questionnaire intended to customize the experience based on your interests and amount of investing experience. The Playground is then displayed, which includes a practice portfolio with $5,000 in virtual money. Rather than seeing menu items and a lot of data, you see a collection of icons that represent your practice portfolio and stocks that might interest you. You organize your experience by dragging and dropping the icons, which could represent individual stocks, groups of stocks, or a portfolio.

These tile-like icons are color-coded based on the industry (blue for high tech, for instance) and are festooned with the corporate logo. On the left side is a palette that can be opened with tools that help you study the stocks on your Playground. The Compar-o-Matic lets you look at fundamental data in visually-arresting way, showing changes in value with an animated graph.

Another tool is the Number Cruncher, which lets you dig into fundamental financial data and SEC filings while it explains underlying concepts in English. As you use the various tools on the site, you generate points, and you “level up” just like in a video game. As you level up, you get access to more tools and additional virtual cash for your practice portfolio.

We can see this broker appealing to younger investors who are familiar with the video-game paradigm, yet uncomfortable with the traditional number-heavy online brokers. Kapitall is also plugged into Twitter, with a stream of tweets scrolling on the bottom of the screen that pertain to the stocks you’ve got on your Playground. The Mini-Map that pops out on the right side of the screen shows you where all your icons are scattered around the Playground; you can use that to scroll from screen to screen.

You can join the site for free and use the tools and a practice portfolio without opening an account, and it would be worth it just to play with the interface. You get real-time quotes, supplied by BATS; if you do sign up for and fund an account by the end of March, you’ll pay $5 per stock transaction for the life of the account. Commissions are $9.95 per trade otherwise. Karl would be intrigued.

Published in Barron’s Online, February 25, 2012. 

Posted by twcarey on 03/03 at 03:08 PM
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