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Saturday, June 19, 2010

More Brokers Join Price-Cutting

It’s usually a good thing when an online brokerage gives its customers what they have asked for, especially when it comes to pricing.

In the latest case, Interactive Brokers ( says it cut fees based on the buzz on its bulletin boards. Andrew Wilkinson, director of media communications, said he had “picked up on the thoughts of a customer wondering why IB’s futures commissions were as high as they were.” He passed the note on to the firm’s CEO, Thomas Peterffy, who subsequently cut IB’s commissions for U.S.-based futures and futures-options trading.

As a result, the two new fee plans for futures trading at IB include bundled, which cover all exchange and regulatory fees, and unbundled, a kind of à la carte menu in which fees are added to the basic transaction cost. Exchange and regulatory fees, as you would expect, depend on the trader’s membership status at the exchange where the trade occurs and the country in which it takes place. The array of fees can be bewildering, though a savvy trader who understands the details of the products can save money by choosing the unbundled plan.

The bundled commissions, as of mid-April, are 85 cents per contract, a significant decrease from the previous $1.24 to $3.75 per contract that IB reported for the Barron’s online-broker review in March. For those who would rather figure out the additional fees on their own, the volume-tiered unbundled plan now costs 25 cents to 85 cents per contract plus exchange, regulatory and carrying fees. Previously, the top commission was $1.25 per contract. Four price tiers based on monthly trading volume are available. Full details can be found at; click on the “US Exchanges” tab.

Wilkinson says the tiered pricing structure for foreign futures and futures options has been simplified; it still looks fairly complex to me. Though I’m generally against tiered pricing structures, I understand that these prices are dictated by the exchanges rather than by IB’s policy. IB clients can trade equity, foreign exchange, fixed income, energy, metals and other commodities futures and futures options worldwide from a single account.

IB isn’t alone in attacking prices. Schwab, E*Trade and Fidelity have already reduced their trading costs. And now ING Direct’s ShareBuilder ( is cutting fees for real-time transactions for its Advantage customers, who pay a monthly subscription, to $7.95 from $9.95. ShareBuilder is designed to encourage regular investments; Advantage clients subscribe to the site’s services for $12 per month, which entitles them to make as many as 12 stock purchases in specific dollar amounts every month. For instance, you could set up a program in which you buy $100 of Apple (ticker: AAPL) stock every week, plus $250 of a favorite exchange-traded fund monthly. When you want to sell stock, you place a real-time trade.

ShareBuilder also has a pay-as-you-go pricing plan, Basic. Under this program, you pay $4 for each automatic investment and $9.95 for each real-time trade. The site offers a one-month free trial of the Advantage program to new customers. The firm eliminated a third pricing tier, and for that, hooray.

New tools of the trade:
TD Ameritrade ( clients who use the platform of its thinkorswim unit can now access an innovative trading simulator called thinkOnDemand. ThinkOnDemand lets investors replay a trade with tick-by-tick data, allowing them to review the conditions at the time of the transaction in slow motion.

The thinkorswim system from the TD Ameritrade trading platform enables thinkOnDemand to paper-trade stocks, futures, foreign exchange and options. Traders can select any date from the previous four months and replay, fast-forward and pause the archived market data. You can enter simulated trades and see the hypothetical results. It’s an extraordinary learning tool integrated with the live trading platform; we raved about its inclusion in the thinkorswim platform back in March.

TD Ameritrade clients who use the thinkorswim platform also have access to several other new tools, including Gadget 360, which displays complex options data in graphical form, the Market Cast squawk box with live discussion of market conditions, and additional charting, analytics, alerts and news.

Published in Barron’s, June 14, 2010. 

Posted by twcarey on 06/19 at 08:55 AM
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Friday, March 12, 2010

Scoring Rubric for the 2010 Barron's Online Broker Review

An abbreviated version of this will appear in Barron’s.  I wanted to spell out exactly what went into the point scoring.


Trade Experience: Working with a live account, we looked for a real-time quote and executed equity trades during market hours, making market buys and limit sales of a stock or exchange-traded fund. 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. 

Following the market buy, we tracked the execution and portfolio reports. We looked for pre-filled order tickets when selling a position, which eliminates possible errors during the closing process. After entering a limit-sale order, we examined the open-order reports and looked at ways to check the progress of the order, as well as ways to adjust the limit price or cancel the order. We also placed options orders, using options’ order-entry screens when available. We also examined mutual-fund, bond, and (when available) futures, commodities and foreign-exchange order-entry screens.

An overall score of 5 in Trade Experience means the order entry-and-execution process flowed easily from one step to the next, with real-time information (including buying power and margin balance) available when needed.

Trading Technology: The availability of price-improvement strategies and smart-order routing technology (which finds the best bid or offer) were necessary to earn a 5 in this category. 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. 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.

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. 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 key here, as are customization options. 

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 all the brokers allow long and short stock-trading, as well as single-leg options orders online, 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.  This year, an additional consideration was the availability of a trading journal, allowing the user to capture market conditions at the point of the trade and take notes on the thinking behind entering that order.  A Barron’s reader requested this feature. 

Help and Customer Access: 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. This year, we increased the points awarded for mobile access in this category.

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 commissions are the biggest factor here, but options and mutual-fund transaction fees are also considered. A 5 could be earned here by very low stock and mutual-fund commissions, $5 or less for 10 options contracts, margin interest rates below 2.5%, and no account-maintenance fees. 

Posted by twcarey on 03/12 at 02:00 PM
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Saturday, February 20, 2010

One Client, One Quote

WHEN CHARLES SCHWAB IN LATE JANUARY WENT to a single, lower fee for online stock trading, we figured other changes were on the way. We were right. Fidelity ended its tiered pricing structure a few days later, and E*Trade followed suit just a few days after that.

As we discussed on Jan. 28 ("Has A New Price War Broken Out in Online Trading?” ), Schwab’s ( peers and competitors interpreted the pricing change as a positive, putting the fees more in line with the rest of the world (at $8.95, the commission is in the middle of the industry pack), rather than setting off a quick race to the bottom. The big shift is that different prices for different customers appear to be coming to an end, and for that, hallelujah.

James Burton, president of Fidelity’s ( retail brokerage, admits his firm’s price change, which drops all stock trades to $7.95 per transaction, was a response to Schwab (ticker: SCHW): “It’s a competitive business. We listen to our customers’ feedback and do what it takes to stay highly competitive.”

One twist from Fidelity is that customers can trade 25 iShares exchange-traded funds free. This suite of 25 BlackRock ETFs, according to Burton, covers the key U.S. asset classes: large-, mid- and small-cap, with a mix of growth, value and blend funds. There are also international and bond ETFs available. “Investors who want to use passive index products to supplement or form the core of a portfolio can now do that at no cost,” says Burton.

BlackRock’s iShares S&P 500 ETF (IVV) already has an extremely low expense ratio of nine basis points (0.09%), according to Burton. If you held $1,000 worth of IVV, that would cost you 90 cents a year in administrative and other fees, compared with the 0.5% to 3% most mutual funds charge. And then you don’t have to worry about other transaction costs, bringing the relative cost of owning or trading ETFs way down. “We’ve removed that incremental cost,” says Burton.

E*Trade ( didn’t toss the tiered structure entirely, but eliminated the top tier of $12.99 per trade for less-active customers. Now the top commission is $9.99 per trade; active traders with more than 150 trades per quarter will pay $7.99. In addition, the firm will stop charging a quarterly account-service fee of $40 in the second quarter of 2010. E*Trade (ETFC) is also dropping a per-share charge for trades of more than 2,000 shares.

Years ago TD Ameritrade made a big splash when it announced that all stock trades would carry a $9.99 commission. It was a big deal because the broker wasn’t playing the tiered-pricing game. With E*Trade hanging on to its tiered pricing structure—albeit a reduced one—the industry can’t quite say a final good-bye to this idea. Which is too bad.

Lightspeed (, which has focused on active retail traders as well as proprietary trading groups, hedge funds and algorithmic “black box” firms, noted with interest that about 30% of its new clients in 2009 came from traditional online brokers. Some of these new customers, the online broker says, previously were intimidated by Lightspeed’s extremely customizable software-based trading application. Now the firm hopes to make it even easier for them to join up.

Stephen Ehrlich, Lightspeed’s CEO, says most of the new customers “graduate” to Lightspeed’s platform, but many have asked for a Web-based application. “They’re just about ready to make that jump, but to get ready they want to use the Web-based platform, use the demo of the software platform and then make the move,” he notes. “Our Web Trader will remove that intimidation and help the customer coming from a traditional broker make the switch,” says Ehrlich.

The Web Trader went live on Feb. 2. Customers can trade stocks and options on the Web Trader but must use the Lightspeed software application to trade futures. Lightspeed charges 0.395 cents per share for stock trades, and 50 cents per contract for options transactions, with no minimum.

One drawback I see is that customers must choose one platform or the other, and can use only one at a time. So once you begin using the software platform, you can’t go back and use the Web application. Ehrlich notes the Web platform is version 1.0 and Lightspeed will continue to work on it, making it more powerful. I hope it will be interchangeable with the software platform in time as well.


Customers of Scottrade ( can now place orders online for approximately 3,700 international securities, including many Canadian stocks. The securities include American depositary receipts along with U.S.-traded foreign stocks from approximately 20 countries on six continents.

In addition, Scottrade added an International Investing filter to its stock screener, which can be found in the Quotes & Research section of the site. The online Knowledge Center now includes research materials about ADRs. The section includes information about different types of foreign securities at Scottrade, how to trade them and how to read the symbols.

Commissions are $7 per transaction for stocks priced over $1 a share. All transactions are completed in U.S. dollars, including dividend distributions.


Market Topographer (, launched in mid-January, attempts to provide the answer. The site combines fundamental and behavioral analysis, focusing on a company’s relative risk profile, its trading multiple, and whether expectations embedded in its share price are achievable.

Free during an evaluation period, the platform is driven by a financial model with 20 years of data, analyzing 12 core risk-assessment characteristics. The suite of tools is designed to be agnostic and avoids buy and sell signals. You’ll find comparisons between two stocks, with the price broken down into a variety of components, such as expected earnings growth and dividends paid.

Check out the free trial, because it appears to me that this will be an expensive site once the publisher starts charging.

Published in Barron’s 2/15/2010

Posted by twcarey on 02/20 at 03:08 AM
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