Investor Brain

Saturday, August 05, 2006

Unhappy Honeymoons

EARLIER THIS MONTH, WE REPORTED on technical glitches that had prevented some of the 2.1 million legacy TD Waterhouse customers from accessing their accounts at the revamped TD Ameritrade site following their broker’s merger with Ameritrade ("Tears at Waterhouse,” July 3). What wasn’t clear then was how extensive the outage was or how effective the fixes would be. TD Ameritrade has now shed some light on this.

Spokeswoman Kim Hillyer says that as many as 82,000 customers, or about 4% of the total, were blocked from their accounts for one to four days in mid-to-late June. As reported, a beefed-up security system that doesn’t store account numbers, among other items, prevented some clients from logging on.

Hillyer says that software implemented on June 21 has, by all accounts, been successful in alleviating the problem. “If clients are still having difficulties, they shouldn’t be related to the issue we encountered in June,” she says, adding, “We’re happy to help those clients in any way we can.”

Meanwhile, at E*Trade, which has purchased former online rivals Harrisdirect and BrownCo, some client dissatisfaction continues.

A number of one-time BrownCo clients recently complained to us about the cost-basis reporting on the positions they entered prior to the takeover. One reader said the total gain in his account was incorrect because the history of corporate actions wasn’t transferred from BrownCo. “No splits or other actions that might affect the original share cost are noted, and the result for many stocks is wildly incorrect gains or losses,” he stated in an e-mail. Moreover, a legacy Harrisdirect customer reported that the cost basis of one of his positions was changed to zero after the company was de-listed in the U.S., even though it was still trading in Canada.

E*Trade spokesperson Cora Lee says that the firm is working to improve its cost-basis system, including its ability to incorporate updates for mergers or other corporate reorganizations. “This enhancement is involved, given the complex nature of corporate reorganizations, but it is something E*Trade aims to roll out soon,” she says. “It’s a priority for us.”

E*Trade’s recent focus has been on incorporating conditional orders into its order-entry system. We’ll take a look at that and report back.

FOREIGN-EXCHANGE TRADING has been heating up, in part owing to the dollar’s retreat but also because it’s a volatile 24-hour-a-day-market—perfect for trading junkies. Several months ago ("Seek and It Shall Find,” Feb. 20), we looked at an intriguing forex broker named FX Solutions (http://www.fxsol.com), which had developed an automated trading system that maintains the spread between bid and ask at 3 pips (hundredths of a percentage point). We were impressed by the site, but criticized its anemic charting capabilities. They’ve filled out substantially since.

The company recently introduced FX AccuCharts, a proprietary charting application that takes advantage of a fast data feed. It’s available to customers who have funded accounts at FX Solutions—those who have signed up only for demo accounts can use GTS Charting, which doesn’t offer as many forms of technical analysis as AccuCharts.

On starting up AccuCharts, you’re presented with a column of flags on the left-side of the screen; clicking on one opens up a pricing page that shows the currencies you can trade against the one you’ve selected. For example, if you click on the Aussie flag, you’ll get all the pairs applicable for trading the Australian dollar. If you click on the button labeled “All,” you can see real-time pricing for all 20 currency pairs tradable via FX Solutions.

The displayed prices can be executed immediately if you’re also logged into the trading area of FX Solutions. You can’t trade directly from the charts section at present, but manager of foreign-exchange sales Bill Lawless says the firm will soon provide that option. Currently, you can “float” a trade ticket from the trading application over your charts so you can enter a market order. “We’re working on putting limits and stops into our floating trade tickets,” says Lawless.

The charting package lets you combine two currency pairs on a single chart by clicking on a price display, then dragging and dropping it onto another chart already displaying another pair. For instance, while viewing a dollar/euro chart, you can combine it with a chart showing Swiss franc/yen so you can monitor price changes simultaneously. You can also can keep up to 20 virtual pages, customized with charts and data.

Changing the time horizon of a chart is easy. Switching from a five-minute time frame to a monthly chart takes a single click. You can also set up various alerts when key changes occur, such as a break in a trend line.

Since most retail forex traders crave technical analysis, FX AccuCharts is packed with more than 150 indicators—it also lets you create your own—and studies. These tools give FX AccuCharts the technical analysis needed to complement a trading platform that already provides tight spreads and accurate pricing.

Published in Barron’s, July 31, 2006.

Saturday, July 22, 2006

Hard-Working Money

WHEN YOU TAKE A VACATION, do you give your portfolio a little time off, too? Or do you prefer to keep your money sweating away while you sip piña coladas miles from the nearest Internet connection? If you’re inclined toward the latter, then automatic trading may be for you.

To set up an auto-trading system—which means authorizing trades of specific dollar or share amounts to be entered on your behalf—you need to check with your online brokers to make sure they can enable it. You can devise your own trading framework, or subscribe to an advisory service that generates trading signals that are automatically converted into orders at your online broker. You should also do a gut check to decide whether this exercise will ruin your relaxing time away.

Some of the brokers that let you sign up for auto-trading include thinkorswim’s Autotrade (http://www.thinkorswim.com), optionsXpress’ Xecute (http://www.optionsxpress.com), Trade-Station’s EasyLanguage (http://www.tradestation.com), ManSecurities Auto-trade (http://www.mansecurities.com) and Terra Nova Online’s Auto-Trading (http://www.terranovaonline.com).

This week, we looked at automatic options trading.

Brokers will usually require you to specify the size of each order you want executed when a signal is received. The size can be based on a dollar amount or on a set number of shares or contracts. Or you can key it on a percentage of your current buying power or portfolio. When a trade is executed, the broker will charge its typical commission.

It’s easy to find a trading strategy that you can sign up for: Check the contents of your e-mail spam folder—just kidding. For real, though, there are dozens of advisory newsletters that online brokers partner up with. You can then authorize your broker to trade for your account on triggers generated by those specific newsletters.

ONE THAT CAME TO our attention recently was the Naked Options Trading System (http://www.options-trading-system.com), published by MarketVolume (http://www.marketvolume.com). Using this system requires that the user go through the Securities and Exchange Commission-mandated qualification process for trading naked options, which can be highly risky; the process is meant to verify that the investor has some experience trading options and understands the risks.

Vlad Korzinin, MarketVolume’s Vancouver, B.C.-based CEO says, “We believe that our product is successful because it’s based on market-volume technology and trend prediction.” His system depends on an accumulation of volume surges, which he says can predict institutional trading activities like, say, a big buying program from a mutual fund. MarketVolume’s patent-pending technology analyzes volume surges that don’t result from general market shifts.

These calculations, based on moving averages, are compared with historical performance going back to 1999, and then are used to project what a particular volume surge might mean. This lets a user discern a momentary reaction to market news from a fundamental jump in institutional interest. Korzinin says, “A newly calculated surge has to reach or exceed an earlier surge to mean anything.”

These surges generate trade triggers for written puts (puts sold short) or written calls (calls sold short) for QQQQ (the exchange-traded fund that tracks the Nasdaq 100 Index) options. The signals are for options with up to six months to expiration. The system generated nine entries and nine exits in 2005, and so far has generated four entries and four exits in 2006. To mitigate risk, Korzinin recommends that traders put less than 15% of their investment assets into naked options and trade only options on indexes rather than taking far-riskier positions in individual stocks.

The system’s trade triggers are audited by Ernst & Young, which verifies the signals in a quarterly report.

Through the end of July, a subscription to MarketVolume’s Naked Options Trading System is $95.95 a month, $243.95 a quarter, or $779.95 a year. However, these are promotional prices that are slated to increase at the beginning of August. Subscribers to the Naked Options Trading System can auto-trade on ManSecurities, optionsXpress (as of last week), Investrade (http://www.investrade.com), Terra Nova and Synergy Investment Group (http://www.synergyinvestments.com). More brokers are expected to offer it shortly. If you don’t have an account at a broker that can auto-trade this system, you can receive an e-mail alert that will prompt you to place the trade manually.

Naked Options’ publisher MarketVolume also offers its own charts detailing volume-based trading signals for U.S. indexes. The user can specify a time period for the chart, and the underlying calculations generating the triggers are automatically adjusted.

MarketVolume membership comes in three flavors: Silver, Gold and Platinum. Silver members ($44.95/month, $389.95/year) receive real-time volume indicators, daily commentary and volume charts for many U.S. exchanges and indexes. At the Gold level ($87.95/month, $764.95/ year), you also get signals for exchange-traded funds 45 minutes before the market’s close. Platinum members ($157.95/month, $1,369.95/year) receive real-time indicators for advances and declines for all major U.S. indexes and exchanges, aimed at highlighting critically negative or positive sentiments before price-trend reversals. It’s info your money can use even when you’re not around.

Published in Barron’s, July 17, 2006.

Saturday, July 08, 2006

Tears at Waterhouse

This is the second column that I changed somewhat from the print edition of Barron’s.  There are two reasons for the change this time:  fixing the error that started in the June 19 column, and fixing a change made by an editor that insulted some readers.  You can see what was printed in Barron’s by clicking on the link at the end.

AMERITRADE’S INTEGRATION OF TD WATERHOUSE customers into a combined trading platform has caused significant pain to some of the newcomers. Over the weekend of June 17, TD Ameritrade implemented a security upgrade as it linked the two systems. Unfortunately, the hoped-for improvement caused problems, some of which prevented former TD Waterhouse customers from logging into their accounts.

A number of frustrated legacy TD Waterhouse clients described the situation in various grades of invective in e-mails to Electronic Investor (electronicinvestor@yahoo.com).

What actually happened, according to TD Ameritrade’s corporate communications manager Donna Kush, was that the TDW customers were routed to a new login page that had additional security features. Under the old system, the investors could opt to store their user IDs, which are made up of a long string of numbers. But the automatic ID storage was disabled at the new page. So folks who were used to having their computer enter those numbers for them had to dig out the account number and type it in again—and again and again. The new system, in keeping with the added security, doesn’t store account numbers.

Ameritrade also experienced what Kush calls “some technical issues” that prevented a number of former TDW clients from logging into their accounts on Monday, June 19. She reports a backlog of customer-support calls on Monday, but says that volumes dropped off as the week wore on.

Kush says that TD Ameritrade fixed the problem as quickly as possible, and changed its software on June 21. “We expect that will help improve the situation,” she says. “We’ve also contacted affected clients by e-mail and phone to apologize and explain the issue. We’ll continue to give them updates,” Kush says. Adds her TD Ameritrade colleague Kim Hillyer, “The technological fix has provided significant improvement, and most clients should now have a completely normal log-on experience.”

Clients who can’t log on using the Web have other options—visiting one of the company’s offices or utilizing its touchtone trading system. However, those options cost more than the $9.99 for online stock trades—phone trades are $34.99 and a broker-assisted trade costs $44.99. Hillyer says the company will deal with each customer individually regarding any additional charges.

I reviewed some of the message boards that discuss TD Ameritrade at Yahoo! Finance and saw a lot of expressions of anger. I’ve also gotten e-mails asking how long it takes to get an account moved to another broker. One piece of advice: That process is time-consuming and can incur fees, so it shouldn’t be done lightly or out of momentary anger. Frustrations are bound to occur as firms with different technologies integrate. You can move your account prior to integration—but that’s no guarantee of satisfaction. Besides, given the wave of industry consolidation, your new broker probably won’t remain independent forever.

Professional Money Managers with a broker and clearing arrangement set up are the target market for SDS Trader, published by New York-based SDS Financial Technologies (http://www.sdsft.com). SDS Trader provides financial information and trading-related services for brokers, traders, exchanges and corporate clients. It’s a market-data and trading platform that lets customers—both professionals and frequent individual traders—view, manage and place transactions. Retail clients can purchase SDS Trader from On Point Executions LLC (http://www.onpointx.com) and Raymond C. Forbes & Co. (http://www.rcfco.com/index.html).  Once the accounts are defined, the user can get a variety of quotes for stocks, options, futures, commodity and currency options, bond chains, stock derivatives, Treasury bonds and more.

The package contains a traditional charting system with advanced analytics that are easy to change and customize. One feature we liked was Quadrant Chart, which lets you define four charts that will be displayed simultaneously. You could have one chart with real-time tick-by-tick data, another with monthly data and trend overlays, and two others displaying analytics.

The program shows its power in the trading platform. You can create order routing preferences in the Broker Preference screen, including specifying preferred exchanges. You can also restrict the routing to exclude certain destinations, such as an electronic communications network, or ECN, with high fees or a bourse that doesn’t offer much price improvement.

Original published in Barron’s, July 3, 2006.