Saturday, September 29, 2012

Schwab, Fidelity, World

The two big online brokers will give clients lots of new access to foreign countries and currencies.

Although staying close to home has worked best for U.S. investors in the last year, most strategists contend that owning foreign stocks is vital in creating a successful, resilient long-term portfolio. Two of the largest online brokers agree, selecting the same mid-September day to announce a substantial expansion of their international investing choices.

Responding to the results of its own client survey that found that 73% of investors are interested in global investing, Charles Schwab is offering commission-free trading through March 2013 for those who open a Schwab Global Account. (Currency conversion and various other fees will apply, however.) The global account allows direct access to 12 foreign markets, including Australia, Canada, Germany, Japan, and the United Kingdom. This expands Schwab’s ( global reach to 30 foreign markets.

The Schwab Global Account differs from the standard Schwab One account and requires an additional application. A Schwab One account holder can place international trades through a live broker, and those trades are settled in U.S. dollars. In a Global Account, which is available only to U.S. citizens, you can place the trades yourself online in non-U.S. dollar currencies. By staying in a foreign currency you avoid the conversion fees.

Fidelity ( also expanded its international offerings, adding eight countries and three currencies to the platform it launched three years ago. These new countries and currencies will be available to trade by the end of 2012. Fidelity’s international trading capabilities are built into its Web-based trading site and do not require an additional account. The new territories include South Africa, Ireland and Poland, increasing online investors’ access to a total of 25 foreign markets and 16 currencies. Fidelity also offers foreign-exchange trading with access to 46 countries and local settlement in 20 currencies.

Fidelity and Schwab (ticker: SCHW) are jumping on a long-term investment trend. The U.S. stock market capitalization now accounts for 47.5% of the world’s equity, down 6.5 percentage points from a decade ago, according to MSCI, a global indexing firm. Because of the big domestic rally in the last year and troubles in China and Europe, the U.S. share of global market-cap has regained 4.1% percentage points of global share in the last 12 months. That suggests, however, that it could be a good time to start researching overseas equities for an eventual rebound.

Both firms have added extensive international research tools as well. Anyone with a Fidelity account can access this analysis as well as real-time quotes. Schwab’s platform features a stock screener that lets you look for particular countries. Schwab’s Equity Ratings, a proprietary method for rating performance, also covers approximately 4,000 stocks in 38 foreign-equity markets.

YOU’LL FIND PLENTY OF help to get started, or to expand your knowledge once you’re comfortable. Fidelity’s Learning Center has an international trading video module that steps you through the nuts and bolts of the process. The Fall 2012 issue of Schwab’s magazine, On Investing, includes an article by Greg Forsythe, a senior vice president in the firm’s equity ratings group, that lays out guidelines for selecting international stocks. Find it at

Trading on international bourses does add risk, especially when you’re converting U.S. dollars into a foreign currency. Depending on the dollar’s value, it can add or subtract from your return in a significant way. There is also an additional cost; at Schwab, you’ll pay 0.2% to 1.0% to convert dollars into other currencies, depending on the amount. Commissions are somewhat higher than what you’d pay to trade U.S. stocks; for example, Schwab will charge 14 Canadian dollars per trade once its commission-free period expires next March, while Fidelity charges C$19. Both firms restrict international trading to non-retirement brokerage accounts.

Most online brokers allow access to ETFs and mutual funds that are invested in international equities and bonds, so there are easy ways to diversify your portfolio without getting into currency conversions and placing trades on international exchanges. But if you’re ready to do it yourself, the two largest online brokers have made foreign investing more accessible, and offer plenty of online educational tools to guide you along the way.

Published in Barron’s, September 24, 2012. 

Posted by twcarey on 09/29 at 04:08 PM
Published in Barron's • (0) CommentsPermalink

Saturday, September 15, 2012

Adventurous Capital

The SEC shortly will ease limits on individual investing in venture-capital projects. Going with the “crowd."

Earlier this year Congress passed the Jumpstart Our Business Startups, or JOBS, Act, which had rare bipartisan support. Of interest to retail investors, the small-business stimulus measure would ease some Securities and Exchange Commission restrictions on how new stock offerings in start-ups are publicized and sold to individuals, including over the Internet. A number of Websites already are being developed to facilitate what’s called “crowdfunding” for small enterprises, and more can be expected as the act is implemented, most likely early in 2013.

The SEC is required by the act to modify the prohibition against general solicitation and advertising contained in the Securities Act of 1933. Investors will still need to be “accredited” to participate, in order to limit the possibility of a devastating loss. As a result, caps will be placed on how much a person can invest relative to his or her annual earnings or net worth. The agency released its proposed rules on Aug. 29, though they are still vague in some areas and will become more specific as responses to the proposal are evaluated.

In the meantime, those interested in funding start-ups can browse sites such as Kickstarter ( and Indiegogo (, both of which operate under a donation model. When you invest in a project listed on one of these sites, typically you are promised a product in return. The more you donate, the more you are promised. A large majority of the projects listed on Kickstarter and Indiegogo come from aspiring musicians and artists, but you might also find some tech toys as well. One of the most popular projects on Kickstarter was the Oculus Rift, a virtual-reality headset for videogames. Those who donated $10 got a “sincere thank you,” while those who donated $575 or more were promised a developer kit for the device itself, allowing them to write a videogame for the headset.

These generous individuals who helped get the Oculus Rift off the ground did not, however, receive any kind of equity in the company. The provisions of the JOBS Act will, in time, allow early investors to receive an equity stake in a pre-IPO company.

There are other sites that focus on microfinancing, allowing an investor to make a small loan to a company or individual in need. These include Prosper (, which seems to list a lot of individuals looking to borrow money, and AngelList (, which helps fledgling start-ups locate financing.

FIRST FUNDER (, launching later this month, is poised to take advantage of crowdfunding based on equity investing rather than donations. According to CEO Jonathan Beninson, the founders have been working on this concept for nearly two years, starting well before the JOBS Act came along.

“We’re partnering with entrepreneurship programs, including those at universities,” says Beninson. “These programs will qualify a company in some way, either through mentors or access to experts.” These partnerships create a community of entrepreneurs, investors, and an interested organization. Beninson notes, “The benefit of investing in a start-up that comes out of your community is that you’re investing in a known quantity. You’re not investing in a Nigerian prince” who’s e-mailing you for money.

First Funder’s model is unique because the potential investments are vetted and have some backing that goes beyond financial. The site plans to merge elements of microlending to individuals and small companies with equity and donation-based crowdfunding. Before First Funder (or any crowdfunding site) can enable equity-based crowdfunding, though, the SEC rules have to be finalized. Beninson says, “At First Funder, we’ve prepared a variety of strategies to react to whatever comes down the pipeline. But we don’t know what they are yet.”

The site organizes projects in a variety of ways, including by program partner such as incubators, universities, or associations. You can also browse by category, such as arts, finance, technology, science, and environment, or health and medicine.

We expect to continue monitoring the development of crowdfunding as the SEC rules are clarified, and as additional sites make this form of investment possible. 

Published in Barron’s, September 10, 2012. 

Posted by twcarey on 09/15 at 01:41 PM
Published in Barron's • (0) CommentsPermalink

Saturday, September 01, 2012

Easier Options Orders

Online broker OptionsXpress automates the process for traders looking for the best price on an options spread.

OptionsXpress has added a nifty new order type to its All-In-One trade ticket that should be useful for traders. It’s called the Walk Limit, and it’s intended to help the trader work an option spread and get a better price. Joseph Vietri, optionsXpress’ CEO, explains that the aim is to facilitate multi-leg option spread orders and possibly save online brokerage customers some money.

The All-In-One trade ticket is part of optionsXpress’ ( Web-based platform and, logically, is found under the “Trade” tab. We’ve been fans of this ticket approach since its launch last year. It makes the appropriate trade-order ticket available for whatever instrument you’ve chosen. The Walk Limit adds a new dimension. Normally when you enter an option-spread order, you choose a limit price between the bid and the ask, and watch to see if it executes at that price. If not, you manually adjust the limit price.

The Walk Limit order type “walks” from the midpoint of a spread price to the ask price, bumping your limit-order price automatically every two seconds until the order is filled. It’s available for six types of two-legged option spreads: call spreads, put spreads, straddles, strangles, calendar spreads, and diagonals.

The new order will be very helpful for those who create spreads that have a wide gap between bid and ask prices. The Walk Limit defaults its starting price at the midpoint between bid and asked, and then gradually steps toward the National Best Bid or Offer (NBBO) bid or ask price (depending on whether it’s a debit or credit spread) every two seconds. A Walk Limit order won’t fill the order outside the original spread’s NBBO bid or ask.

The process will take a maximum of 11 steps, canceling and replacing the original limit order every two seconds that it remains unfilled. For example, if you enter a Walk Limit order that has a bid of $2 and an ask of $2.40, the original order will be at $2.20. If that doesn’t fill in two seconds, the $2.20 is canceled and replaced with a limit order at $2.22. That order rests for two seconds, and the cancel/replace process is repeated until the order fills, or until the end price of $2.40 is reached. If the end price is reached with the order unfilled, it will become a limit order at $2.40. The automation saves time and could result in better prices.

The only downside, for option traders with less experience, is that they have to determine before they start the order process whether they’re generating a debit or credit spread. A debit spread is created when the trader will be paying for the order; a credit spread occurs when he or she will receive some money when the order is executed.

Though it could be tricky to extend this function to order types that have more than two legs, or that contain a stock component (such as a covered call or a protective put), it would be great to see the Walk Limit order’s functionality grow. I’d also like to see the ability for the trader to set the start point of where the walk begins, perhaps at a more favorable price than the midpoint between bid and ask. But overall, this is a most welcome addition to the trading functionality at optionsXpress.

TRADEMONSTER, an online brokerage aimed at active options traders, recently began to offer portfolio margining to qualified customers.

Under this system, margin requirements are set based on the risk in an investors’ entire portfolio, rather than regarding each item in a portfolio as a separate entity. Adjusting margins based on how each new options transaction could affect overall portfolio risk can result in lower costs because some new positions could offset the risk of existing ones. TradeMonster’s Website (, provides examples of how the use of portfolio margin could reduce the margin requirements for a specific short calendar spread from $5,162 to $750. That could allow more buying power and possibly additional leverage.

The firm will offer portfolio margin accounts to customers who have a minimum balance of $150,000, after approval of their application. That includes a quiz on the inner workings of the process. Customers must agree to maintain a net liquidating value of $100,000 in their portfolio margin account as well.

These accounts are a welcome component of an active trader’s tool kit.

Published in Barron’s, August 27, 2012. 

Posted by twcarey on 09/01 at 01:39 AM
Published in Barron's • (0) CommentsPermalink