Saturday, August 31, 2013
New Online Broker Bucks the Tide
Industry veteran Doug Engmann’s latest venture will provide accounting, risk-management and sophisticated portfolio margining techniques for professional traders.
Bucking the online brokerage business’s relentless consolidation, industry veteran Doug Engmann has just launched a new firm that will cater to mid-sized proprietary traders, professional trading groups, and hedge funds. “I like to get into a business when others are getting out,” says Engmann, who’s spent more than 35 years in various parts of the broker-dealer business.
Engmann’s company, Sage Brokerage Holdings, recently acquired a small San Francisco institutional dealer, VT Broker, which it has reconfigured as SageTrader (sagetrader.com). Clients will be able to trade equities, options and futures immediately, and later on fixed income and swaps will be added. SageTrader provides all of the back-end services that heavy traders require, including accounting and risk-management tools.
The creator of Sage has run a number of brokers serving proprietary traders, who trade their firms’ own funds. Among them were Preferred Trade and Fimat. The latter became Newedge Trading. When Engmann retired briefly in 2007, Newedge was gradually wound down, and its clients migrated to retail-focused brokers such as Interactive Brokers and thinkorswim. His previous customers, he says, find today’s trading technology interesting, but miss the service they once enjoyed. So Engmann’s new firm will try to entice these traders with “hands-on service at more efficient and reasonable rates.”
Engmann was working on other projects but says, “This opportunity to acquire a firm and work with my old team was too good to pass up.”
A key attraction for SageTrader’s customers is the ability to utilize portfolio margining, thanks to the firm’s real-time risk management system. Engmann was one of the pioneers of portfolio margining while at Fimat/Newedge USA from 2005 to 2007. This technique can significantly lower the capital required to place a trade because it takes into account both equity and options positions. An offsetting option reduces the overall size of the position, thus cutting the amount of capital required. To offer portfolio margining requires real-time account updates and a sophisticated risk management.
SageTrader won’t offer its own front-end trading system. “It’s easier for clients to choose their own front end and interface with us,” Engmann says. Among the possibilities are RealTick, NeoVest, Sterling Trader, InstaQuote and Silexx. These are all downloadable software packages rather than Web-based trading applications, and typically incur a monthly fee for real-time data. These packages allow traders to develop their own algorithms, which is appealing to very frequent traders and hedge funds.
SageTrade clears securities transactions through Merrill Lynch and Wedbush, while futures are cleared through ED&F Man Capital Markets. One advantage of its back-end transaction management system is that SageTrade can provide customers with a consolidated statement even if they are clearing trades at multiple venues. “We’re finding that very attractive for traders who handle multiple asset classes,” he says.
For lower stakes players, Capital One ShareBuilder (sharebuilder.com) has made mini options available . Mini options went live in mid-March on five stocks and ETFs, including Amazon (ticker: AMZN), Apple (AAPL), Google (GOOG), SPDR Gold Trust (GLD) and the S&P 500 Index ETF (SPY). They allow investors to trade contracts that represent 10 shares rather than the standard 100 shares. ("Apple in Small Bites,” Barron’s, March 4.)
Dan Greenshields, president of Capital One ShareBuilder, says, “Mini options make this increasingly popular investment strategy more accessible to today’s Main Street investors who may not have the capital required to trade standard options, particularly for higher priced securities. We look forward to educating our customers on this new offering, and enabling them to be more successful investors for the long term.”
After reducing fees significantly for options trades during the second quarter of 2013, to $6.95 plus $0.75 per contract, ShareBuilder has seen a 30% increase in options transactions. ShareBuilder’s customers can place regular automatic trades in dollar amounts—for instance, $100 worth of Google stock every month—rather than buying by the share, which recently cost $873.
Published in Barron’s Online, August 24, 2013.
Saturday, August 17, 2013
How to Plan Your Life
Following our two-part series on getting started as an investor ("Best Brokers for Newbies,” July 1 and “An Investment Primer,” June 17) quite a few readers had follow-up questions. A number of you asked about the planning tools available at various brokers and how useful they really are, so let’s take up that topic.
This piece originally appeared only on Barron’s Online and was posted somewhat stealthily.
A couple of years ago, TD Ameritrade launched a life-planning resource called Life 2.0. I like the way the advice is displayed based on various life stages : Starting Out (under 30), Gaining Traction (30-55), Almost There (55-64), and Retiring Soon (65+). For the young’uns, the site recommends ways to avoid going deeply into debt, and whether to buy or rent a home. For those nearing retirement, the article, “Solutions for Retirement Setbacks” addresses problems that the loss of a job or prolonged recessions may have on meeting savings goals. An essay on caring for aging parents helps guide you through a series of questions that may help clarify your thinking on this difficult topic.
Of course, Life 2.0 relentlessly pushes you to open an account with TD Ameritrade, but that’s to be expected. What I appreciate about the site is that it doesn’t focus only on retirement, but also presents the other financial challenges that face many of us—saving for college, for example.
Merrill Edge has an intriguing feature called “Face Retirement” (faceretirement.merrilledge.com) that may at first frighten you. Using your computer’s webcam, Face Retirement takes your picture and then shows you how you’ll look in the future, and what your cost of living will be. When this tool was launched last December, Alok Prasad, the head of Merrill Edge, said, “In a Stanford University experiment, people who saw age-enhanced images of themselves were more likely to save more for retirement, compared to those who weren’t exposed to their future selves. Face Retirement is designed to minimize that gap by giving consumers a preview of their future self, encouraging them to take control of long-term financial planning.”
The photos can be powerful stuff. When you see what you could look like at age 70, you may have an urge to put aside money for cosmetic enhancement. Or you may be inspired to go through some of the planning exercises on the page, and start saving more.
E*Trade also has life stage planners, but the focus is on investing for retirement. This includes useful advice about moving your 401(k) when you change jobs. Fidelity’s Guidance and Retirement section has a well-thought-out Having a Child Checklist, prompting you to think through health coverage, life insurance, college savings, and enhancing your retirement savings.
Trading Contests: Would you like to pit your trading savvy against a bunch of strangers, and perhaps win some money? Here are a couple of contests running now.
Kapitall (kapitall.com) offers the Market Master Tournament, which runs every week. You start out with $100,000 in virtual money, and the top three gainers each week win cash prizes, which are deposited in their brokerage account. You can play the game without opening an account, just by signing up for a free membership, but the cash prizes are only awarded to those who have accounts.
The site offers a game-like view of investing, with all activity taking place on what the founders call “the playground.” Originally launched as a Web application to help site members explore their investing ideas, Kapitall added trading capabilities last year. 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.
StockViews (http://www.stockviews.com), a recently-launched social site for traders and investors, offers a $250 prize to the winner of its monthly stock picking challenge. The August contest is in progress; a new one will be started in September.
To join the contest, you must become a member of the StockViews site (which is free), then rate and review at least three stocks. Your rated stocks will then be compared to returns on the S&P500, and the best performer will win the money. Enjoy!
Published in Barron’s Online, August 13, 2013.
Saturday, August 03, 2013
TradeKing, Gain Unite
The latest example of the consolidation among smaller online broker firms. More tools, lower prices for Gain traders.
Fort Lauderdale, Fla.–based online broker TradeKing, which snapped up rival Zecco late in 2012, last week bought Gain Securities, a subsidiary of Gain Capital Holdings . TradeKing’s CEO Don Montanaro says the takeover includes only Gain’s stocks, bonds, and options customer base, which was a small portion of the online firm’s total retail business, which focuses on foreign-exchange trading. The deal will close within 30-60 days, pending approval of the Financial Industry Regulatory Authority.
The exact details of the all-cash deal have not been announced, but Montanaro says that they affect “a few thousand customers with a few hundred million” dollars in assets. The specifics will be disclosed once the transaction has been completed and publicly held Gain (ticker: GCAP) files its quarterly reports. Gain shares rose about 20 cents, to $6.30, on the news.
TradeKing and Gain have gotten to know each other over the past year because TradeKing uses a Gain foreign-exchange application as part of its own trading platform. Gain Capital was the target of a $210 million takeover bid this past spring but fended it off by buying a competing online foreign-exchange broker. Montanaro says that Gain Capital’s CEO gave him a call to see if it was interested in this portion of the business.
Montanaro says that “TradeKing will be a great home for them. We charge less than Gain was charging, plus they’ll get a site with more tools and more education.” The new customers will also be able to use TradeKing’s mobile apps, which Gain does not offer. They will see their stock-transaction fees drop from $6.99 at Gain to $4.95 at TradeKing, which should soften the blow of making a brokerage transition. Since both firms use the same clearing firm (Apex), Montanaro says they’ll be able to keep their account numbers, as well.
Problems in online-brokerage mergers usually occur when clearing operations have to change. So if the Finra approval occurs as expected, the technology aspect of this takeover should progress without much trouble.
Montanaro says his firm is very willing to grow via acquisition, and figures there are quite a few candidates out there. “We care a lot about the client in this space, and we know we can bring them a great experience,” he says, adding, “I found that my team is really good at managing these mergers and acquisitions. We’ve shown we can execute on that and want more chances.”
Outside of the Big 5 in online brokerage— Charles Schwab (SCHW), Fidelity, E*Trade Financial (ETFC), TD Ameritrade (AMTD), and Scottrade—Montanaro expects continuing consolidation. “We’d like to be the driver of that,” he says.
OPTIONSXPRESS UNVEILED its Walk Limit order late last summer with the intention of making options spread orders easier to place while possibly saving traders money. According to the firm’s CEO, Joseph Vietri, client savings so far are running in the range of $1 million per month. (That’s for the entire firm, not each client.) There is no additional cost for a Walk Limit order, which automatically updates your order rather than relying on time-consuming manual shifts to try to get a good price.
This order was restricted when first launched, with the initial price defaulting to the midpoint between bid and ask; the price would gradually step toward National Best Bid or Offer every two seconds. In January, however, traders could set their own initial start price, and in May the ability was added to customize the time taken to step from one price to the next, ranging from two to 60 seconds.
Built on optionsXpress’ proprietary options order-routing technology, the Walk Limit functionality has been extended to all two-, three- and four-legged options strategies, and will be available for single-leg strategies starting in September. The Walk Limit technology will be extended to futures options orders, as well.
When the optionsXpress is absorbed into the Schwab platform, the Walk Limit order type will continue to be available. Vietri says, “We want you to get better fills and better outcomes, so we have happy clients who tell their friends, and bring in new clients.”
Published in Barron’s, July 29, 2013