Saturday, March 16, 2013
After being pursued for years by online brokers, investors finally have a compelling reason to succumb: The stock market is going up.
Equities’ 8% climb this year, highlighted by last week’s record Dow Jones Industrial Average close, has coaxed investors to rebalance their portfolios and bring cash off the sidelines, say online brokers. Individuals’ equity allocations reached a two-year high of 62.5% during February, while cash positions, at 16%, stayed well below their 24% historical norm, according to the American Association of Individual Investors. Retail specialist Charles Schwab reports that its client base averaged 504,700 trades a day in January, up 8% from a year ago; dollar volume surged 12% over levels seen just a month earlier.
The chance to make real money apparently is more seductive to investors than offers of free trades, sophisticated algorithms, novel screeners or the ability to buy a stock whenever the spirit moves them, be it from a desktop computer, laptop, tablet, or smartphone.
Online brokers, a number of whom told Barron’s they were enjoying record first-quarter volume to date, caution that some of the volume is just a function of rising asset values. Still, that’s far preferable to the alternative. They’ve had to do everything possible to keep investors’ and traders’ attention in recent years. Most notably, the cloud’s seemingly endless storage space and flexible programming applications were put to use to give investors a more uniform trading experience. Fidelity, Interactive Brokers, TD Ameritrade, and tradeMonster all now provide real-time data and account information, no matter what device or platform the customer uses. Prior to the recent run-up, one of the few bright spot for brokers was mobile trading, where Fidelity reports its volume rose 40% from 2011 to 2012 and Merrill Edge’s more than doubled. Schwab made data available to its customers through more devices by moving it into the cloud.
As part of our 18th annual ranking of the Best Online Brokers, we’ve had a chance to review many innovations: tradeMonster’s liveAction scanning tool, a remarkably flexible way to seek trading opportunities in real time; TradeStation’s empowerment of investors by offering the means to place a trade without losing sight of a chart; and advances in risk and margin-balance management from E*Trade, optionsXpress, and Lightspeed.
Those who return to online investing feeling a little rusty will find ample opportunity to hone their skills. Educational programs have vastly improved, whether they’re conducted in person, via live Webinars, or from archived recordings. Scottrade says it held an average of 300 seminars per week at its branch offices last year, double the number offered in 2011. Lightspeed produced an engaging series of Webinars informing traders about lesser-known platform features. And OptionsHouse targeted specific types of investors to arm them with the right strategies.
A number of brokers already use video to hold remote face-to-face meetings with clients. Fidelity has gone a step further, adding an avatar-based education program that allows customers to roam a virtual trading center and interact with trainers and other traders. Dan Greenshields, president of ShareBuilder, suggests it won’t be long before investors can get three-dimensional aid. “How about holographic help?” he asks.
In the meantime, Barron’s will try to fill the void. We researched two dozen firms who agreed to provide us with substantial access to their systems. Some, including Vanguard, did not respond to our requests to participate.
Our evaluation criteria focus on the needs of wealthy, active traders. We looked at eight categories of service, examining what can be traded online, how the tools work together across platforms, the design and capabilities of mobile platforms, educational offerings and customer service, as well as the nuts and bolts of placing and executing a trade. We closely scrutinized the various tools available for finding appropriate trades, including scanners and charts (See “How We Ranked the Brokers” at end of the story.) When examining costs, we considered stock and options commissions as well as platform or maintenance fees, margin debt, and charges for transferring an account out.
Although we award 4½ stars (out of a possible five) to just three brokers this year, we also identify the top brokers in six categories–high-frequency trading, in-person service, international investing, long-term investing, services for novices, and options trading—to help you decide where you should open (or transfer) an account. We show the brokers who were at the extremes when we calculated the monthly cost of trading for infrequent traders as well as for those who trade multiple times per day.
Table: How the Brokers Stack Up
Ranking table and cost summaries can be found on Barrons.com: click here
Our 2012 champ, Interactive Brokers (interactivebrokers.com), takes top honors again in 2013. It offers superb trading technology, improved portfolio analysis, and enhanced educational offerings. The firm’s mobile application, Trading Assistant, alerts you to market opportunities around the world, in real time. It allows you to trade almost every asset class possible using its downloadable computer-based platform, Trader Workstation, which continues to evolve as an excellent tool for staying on top of global trading. You can also view a portfolio analysis report that you designed on your desktop from a mobile device.
An addition to the platform this year is IB Market Signals, proprietary algorithms that continuously monitor the U.S. equity and option markets to highlight possible chances to profit, or to flag unexpected behavior in existing positions. Volatility correction figures make sure that the signals are due to ticker-specific action and not just the gyrations of the overall market.
The platform supports enough bells and whistles to make a technical analyst giddy, but this year IB has focused on the fundamental researcher. The summary gives an overview of a corporation’s finances going back 20 quarters, along with eight quarters of analyst estimates. You can generate charts that overlay specific financial data across the stock price, and get an idea of how a company’s performance affects market activity.
As we’ve said before, this isn’t a broker for the casual buy-and-hold investor; IB caters to hedge funds and very frequent traders. There is a minimum monthly fee of $10, which can be disposed of with a few trades, and some data feeds are not free. If you have multiple accounts at IB, or trade frequently enough, you can keep the fees under control.
No. 2 tradeMonster also earns 4½ stars (though a lower score) on the strength of its extremely flexible Web-based and mobile applications. This broker is aimed squarely at options traders, and its Website (trademonster.com) is packed with scanning tools that help you pinpoint opportunities. The site nicely guides you through the firm’s tradeCycle, which encourages you to do your homework, evaluate a trade’s potential profitability, set an exit strategy, and stay on top of market movements.
You can trade stocks, futures options, single stock futures and commodity futures with tradeMonster, but options are the real play. The firm’s education section includes numerous Webinars that help customers learn more about trading everything from simple calls and puts to complex four-legged strategies and more. The trading application allows you to build a spread with up to eight legs.
Over the past year, tradeMonster has spent a lot of time developing a fully functional mobile platform, which includes streaming data and the ability to build multi-leg options orders. Jim Swartout, the firm’s president, says that its patent-pending mobile app “provides the ability to take your desktop with you. It’s anywhere, anytime, and fully functional from any mobile device.” Although the new scanning tool, liveScan, is not yet integrated into the mobile application, this is a terrific, comprehensive platform.
Other brokers now license Interactive Brokers technology, including Place Trade. As a result, we can’t credit it for the system, but we do like third-place finisher just the same. Sarah Place, the firm’s CEO and namesake, has a slightly higher fee structure for online trading (placetrade.com) than IB, but distinguishes herself with a full-service brokerage boasting a team of experienced advisors. Place Trade also has a larger roster of mutual funds than IB, and tends to have a longer-term investment outlook for its clients. What we like most about Place Trade is that its friendly, attentive service complements IB platform.
Our top three picks, IB, tradeMonster and Place Trade each offer a distinct experience, whether it’s high-frequency professional stock trading or option analysis or high-touch service. That may not be right for you. So we strongly suggest you check out our all of our picks, regardless of star ranking, in the hope one meets your needs.
The following eight brokers all merited four stars in our opinion, which means we like them (click here for the entire list). They offer very different experiences, however, and so you should review them bearing in mind that some may be a much better fit for your trading and investment needs than others. We’ve ordered them by their numerical rank in our system
TD Ameritrade is next on Barron’s overall list, primarily based on the tools available on its thinkorswim platform, which is now fully integrated, giving access to all customers. One thing that Senior VP Steve Quirk likes to emphasize is that its pricing model, while at the top of the stock commission scale, is all-in, so you’re not paying extra for data feeds or third-party research tools.
There are four distinct platforms offered by TD Ameritrade; we focused most closely on the thinkorswim application and the mobile offerings. Thinkorswim was our top selection for several years, most recently 2010. The other two platforms are the standard Website and a bridge application, Trade Architect, which helps investors shift toward the more complex thinkorswim.
On thinkorswim, the charting application has been beefed up, and the Learning Center includes new videos outlining the updated features. For covered call traders, the platform includes a Covered Call Strategy Roller, which lets you buy back the call you sold at the point when it’s about to expire while selling a call with an expiration date that is further out. The roller works with regular monthly expirations as well as weekly ones.
When placing an order, the price that is automatically set on the ticket is at the midpoint between bid and ask, which you can easily modify. You can also check out every possible options statistic, and fully customize your trading experience.
If you find safety in numbers, TD Ameritrade is indeed a safe place to have an account.
TradeStation offers an incredible platform that’s ideal for the technical analyst and those who want to automate a trading strategy. Thanks to its parent, Japan’s Monex Group, TradeStation is building a global trading system. Vice President Janette Perez says, “We meet you where you are, and elevate your trading.”
You’ll get a lot of help when you first become a TradeStation customer, with support staff figuring out where you are in your trading career and helping you customize the flexible platform for your needs. There are numerous Webinars available throughout the week to keep you in touch with the markets, from a weekly futures market outlook to a daily stock-market session. In addition, there is video help built in to almost every screen.
The trading experience can be completely customized, allowing you to trade from grids, charts, or market-depth screens. The news screen now features the Benzinga Sentiment Rating, which assigns a bullish or bearish sentiment to every story. The only reason this brokerage doesn’t receive 4½ stars is that its mobile offering is not very strong, but that’s a reflection of what its strategy-oriented customers want (or don’t want).
OptionsHouse, as you might imagine, is focused on the retail options trader, and its platform includes some terrific professional-grade tools that are adapted from its parent company’s technology (options market-maker Peak6). Their mobile platforms, which are all device-specific, are easily customized. There are some slight differences between the Android and iOS platforms, but they’re minimal. The way the apps adjust to the device you’re using is very well done.
You can save your username and password for the mobile app on the device if you’d like (this was a popular customer request) or you can tack on another layer of security with two-factor authentication. The grid layout displays your positions and watchlists, which are color-coded to let you know whether you’ve got a gain or a loss.
On the Web-based platform, the Risk Viewer feature takes center stage, showing theoretical P&Ls and a risk score for every position. As CEO George Ruhana explains, “We want our customers to use this to keep their portfolios safe.” You can even project what the risk score for a position will be at a future date.
The platform’s Trade Generator runs a strategy finder against your existing positions or against any watch list you may have set up. A market-scanning feature, Spread Investigator, shows you spread ideas based on your market sentiment and the amount you want to invest. You can take advantage of OptionsHouse’s education offerings to learn more about options, risk, strategy trading, and hedging.
OptionsXpress is gradually being integrated into its parent, Charles Schwab, but will operate on its own until 2015. CEO Joseph Vietri says, “We are continuing to innovate while integrating.”
OptionsXpress’ four-star platform contains two of my favorite Web-based features: the Idea Hub and the All-in-One Trading Ticket. The Idea Hub generates trading ideas based on real-time filters. This tool can help investors find trading opportunities based on their preferred strategies and market views, neatly packaging the output from a variety of analytical tools, generating actionable options-trading ideas. The All-in-One Trade Ticket is a flexible order generator, and is now included in the mobile platforms. This broker is making huge strides in unifying the mobile and computer-based trading experience.
Another feature launched in the last year, Walk Limit Order type, can be used for spreads with up to four legs as well as for covered calls and protective puts. This feature will continue to be enhanced, most recently with customizable start prices and price increments.
You’ll find quite a few opportunities to enhance your trading knowledge, especially about derivatives. Futures trading is integrated into the optionsXpress platform; those new to this asset class are encouraged to try it out on the virtual trading platform before jumping in with real money.
TradeKing has come through its merger with Zecco in good shape. CEO Don Montanaro says, “We brought the best of the two firms together, and got it done pretty quickly.” They were able to add new mobile apps, an upgraded research center, and foreign exchange trading over a seven-month period, which is quite remarkable. You’ll see a merger of the Zecco and TradeKing colors and logos when you check out the site now.
The screening capabilities, especially for stocks and ETFs, were much improved during the merger. You click on the button corresponding to the item you want to filter, such as P/E ratio. There are a number of pre-programmed screens, which you can edit and save, or you can start from scratch and build your own.
The newly-launched TradeKing Live platform displays streaming data, and is intended to offer up the same experience on different devices. The platform is designed to serve the needs of active traders and includes a decent charting package that will be enhanced over time. The Options Strategy Workbench helps you build an options trade in a flexible and educational way.
Montanaro says, “In order to innovate you need resources. We feel like we crossed over that [with the merger] and are in the stage to have the fuel to really grow and compete at a different level.”
Fidelity, one of the first to jump into mobile trading, now has apps with a customizable home screen for all devices. The iPad app is especially elegant, with a view of global markets at startup and a task bar on the bottom with access to accounts, news and insights, research, and watch lists. You can see your watchlists without logging in for a 30-day period; you only have to log in when you want to trade or see account-specific information. This is a fast, efficient way to stay on top of your account.
On the mobile apps, trading is one click away from any screen. They include advanced charting as well as searchable news and a link to the Trefis application, which gives you a visual breakdown of a company’s stock price. The iPad app even lets you adjust the Trefis model and play with future earnings estimates.
Fidelity has worked hard on its learning center and has added quite a bit of new content. You can attend demos on the various platforms, or sign up for classes such as “Generating Strategy Ideas.” The topics are organized by trading level. Vice President Franklin Gold says, “We understand that people learn in different ways and it’s important to address them in a style that makes them comfortable. “
The screeners on the Website include Recognia events, which let you scan for technical developments as well as fundamental ones, all in one screen. We also like the new features included in the “My Research” tool, which features a carousel display of your watch list at the time of the screen. You can arrange the screen to your specifications, and see streaming news from a variety of sources. This was a way to help customers focus the research capabilities that Fidelity offers in an easy-to-use and personalized way.
E*Trade has enhanced its Website with the E*Trade 360 feature, which gives streaming data to all its customers. The layout is customizable and lets you arrange up to 10 “widgets” at a time, such as charts, watch lists, and news. There is context-sensitive help on every screen called “Ask Eva,” also known as the E*Trade Virtual Assistant.
You’ll find a lot of long-term planning tools on the site based on various life stages. These tools let you plan, allocate, choose investments, and monitor them over time.
The active trading application, E*Trade Pro, includes a terrific strategy scanner which includes pre-set strategies as well as a “wizard” that lets you build your own. You can backtest the result of a strategy, and then optimize it based on those results. This scanner adds discipline and removes emotion, which is important for active traders.
The charting features in E*Trade Pro were also enhanced in the last year, and include the ability to trade from a chart. The news feature was also upgraded, with filters and top news by symbol, sector or industry. Futures trading will be launched on the Pro platform later this month.
E*Trade’s mobile apps were also redesigned in the past year. On the iPad, you can see a variety of performance charts and analyst research reports as well as a streaming CNBC widget, which you can set to audio-only. The iPhone and Android apps include a barcode scanner, which give you details on any publicly-traded company associated with a product you might find at, say, a grocery store. You’ll also find most of the education resources on your mobile device as well.
Charles Schwab earned four stars though its total score was lower than the rest of this crew. One issue is that they are encouraging options-centric customers to open an optionsXpress account for more complex derivatives transactions; many of those features are not yet included in the Schwab platform. With all the integration going on between the two firms, they have made it extremely easy to move cash back and forth from one to the other, so if you’re a Schwab customer hungry for additional options and futures trading capabilities, it makes sense to move some of your money to an optionsXpress account. Within two or three years, they’ll all be Schwab accounts again.
Schwab has created a new trading platform, StreetSmart Edge, which all customers can now use. (Previously you had to qualify with either a large account size or frequent trading.) The platform is nicely designed and can be customized, and also allows you to launch optionsXpress for futures trading. The data reside in the cloud, so all the mobile platforms access the same watch lists and positions.
The Investor Learning Center includes platform-usage classes as well as offerings on how to trade various asset classes. There is also research that supports international trading, including country ratings and quotes from multiple exchanges. If you want to find out where to trade Vodafone for the best price, for example, you can get real time quotes from all the associated exchanges on the same screen.
There is dedicated support for active traders at Schwab, as well as for those with large accounts. One minor criticism: You still have to fill out paper forms in order to gain additional trading permissions for options or margin. Almost every other broker does this online, which saves time and trees.
Lightspeed Trading (3½ stars) has enabled complex options trading, and is partnering with education providers to inform their customers, via webinar, of the ways to trade. “Options trading is an important part of the growth of Lightspeed, so we’re spending time and resources on making it a good experience for our customers,” says CEO Stephen Ehrlich. New education providers include RiskReversal.com and CyberTradingUniversity.com. The platform includes tools that active equity traders are comfortable with, and extends those tools to options trading.
Last week, Lightspeed announced that it is teaming up with Chronos Technologies to offer the Iris Pairs Trading Software to its clients. Iris is a customizable market-neutral trading system designed to decipher recognizable patterns in correlated instruments, then execute a trade when specific conditions are met.
With its focus on speed, stability, service and price, Lightspeed has attracted frequent traders, many of whom are professionals, who want to customize their experience and choose how an order is routed. Their mobile apps are focused on providing education content rather than on trading. “For our client type, mobile is still too slow and cumbersome, inhibiting their active trading strategies,” says Ehrlich. Given the tools, speed, and pricing model, though, this is a good home for an active trader.
Merrill Edge (3½ stars) has changed the terms of its Platinum Program so that customers with $50,000 or more in assets at Bank of America and Merrill Edge receive 30 free trades per month, plus lower fees on several other services. Previously you had to hold $25,000 in cash to qualify. The firm is also expanding the number of agents available in BofA bank branches; there are approximately 1,500 now, and the plan is to grow that to 2,000 by the end of the year. “We’re building one-on-one relationships,” says Alok Prasad, head of Merrill Edge.
Online, the platform sports a number of welcome enhancements, including an always-present trade ticket and customizable trading preferences. Streaming quotes have been made available for free to all customers, and a new options strategy scanner lets you find trading opportunities. The mobile apps were upgraded to allow multi-leg options trading.
Bank of America customers will find seamless integration with their accounts, with instant cash transfer and rewards for the combined relationship. The firm plans to more fully engage its growing Gen Y customer base with additional long-term investing and advisory capabilities.
ChoiceTrade (3½ stars) concentrated on adding trade idea generators and educational tools to its platform over the last year in order to assist its diversified client base to be more successful investors. They are now affiliated with Investview, which offers five different courses for traders via Webinar. The content ranges from the very basic, such as “What is a broker?” up to more complex topics such as “How can I trade an iron condor?”
One addition to ChoiceTrade’s platform this year is the WatchPlus order staging tool. This feature lets you build a trade and then set it aside until you’re ready to pull the trigger. It ties in to the InvestView Webinars as the instructors show you how to put together a particular order. Newcomers to complex trading can use ChoiceTrade’s paper trading feature, which includes the WatchPlus feature. They are also sending trading ideas to their customer base several times a week.
Scottrade (3 stars) launched several new features over the last year, including the Positions Page and the Quick Trade Bar. The former lets you customize your view of the positions you hold in your account, allowing several layers of sorting as well as changing the order of columns. You can view the top three analyst reports available for every position, and stay on top of your gainers and losers. The Quick Trade Bar is a detachable toolbar that can accompany you around the Internet, allowing you to view market updates and quotes even when you’re not on the Scottrade Website. You can also quickly place a trade.
Scottrade offers a great deal of personal service, including educational seminars at all of its branches. There are also Webcasts in English, Spanish and Chinese on the Website. You’ll find a lot of information about changes in cost-basis reporting in its Education Center.
Just2Trade (3 stars) will be launching a new streaming application within the next month or two, but it was not available for this review. The firm has added a number of features to its Website, including Level II quotes and a quick order entry ticket. You can also set up a dividend-paying stock for reinvestment at the time you place the initial order; in the past you had to call the firm and ask.
On the positions page, a stock that has dividend activity is highlighted in orange. Quotes now stream in real-time, and clicking on a price populates an order ticket. Commissions are still just $2.50 per transaction.
Capital One ShareBuilder (3 stars) lowered its fees for real-time trades effective March 1 to $6.95 per transaction. Following its acquisition by Capital One, ShareBuilder has been heavily investing in enhancing its Web-based and mobile platforms. It bulked up the investment screeners for stocks, ETFs and mutual funds to allow customers to scan a great deal of fundamental data.
One new feature that is very intriguing is True Equity Exposure, which measures your asset allocations based on not only individual securities, but also by the mix of ETFs and mutual funds you hold. You may hold, say, 100 shares of Microsoft in your account, but the ETFs and mutual funds you own may expose you to a lot more of that stock. It’s a good tool to figure out if you’re overweight in a particular sector.
SogoTrade (3 stars) introduced a new platform, Sogo Online, which is a fairly basic, non-streaming stock and option entry platform. Ray Williamson, manager of broker operations for SogoTrade, says that its foreign clients like this platform. The streaming application, Sogo Trader, is open to all customers with no minimums.
SogoTrade added quite a bit of options functionality over the last year along with an advanced stock screener. Options traders can use the Sogo Options platform, which includes streaming options chains by strike, and the ability to view streaming quotes on a chosen strategy. You can also engage in the firm’s new options education series, Options Boot Camp.
SpeedTrader (2½ stars) offers both a streaming Web platform as well as a downloadable platform; the latter is available for $49 and up per month (the fees are waived if you generate enough commissions). You’ll find all the screeners on the Web platform though. SpeedTrader has very basic mobile apps that allow you to enter orders and check your balances. The Pro platform is a little dated, but SpeedTrader says that many of its customers use their own front end or black box for trading, and just connect to its execution engine.
When you sign up for an account, you have to choose either a per-trade or per-share commission structure.
TradingBlock (2½ stars) grew its funded account base and daily average trades by 250% last year and launched two new platforms though not much was done to its basic Web platform. TradingBlock Professional caters to active stock and options traders and includes several customizable proprietary scanners. It also took advantage of the shuttering of BrokersXpress, a subsidiary of optionsXpress, last summer by launching MoneyBlock, which caters to registered representatives and investment advisors.
The firm is working to carry its technology to mobile platforms.
Firstrade (2 stars) offers access to streaming quotes for its top-tier users and has added Morningstar analysis for stocks and ETFs. It’s working on new scanners and screeners which it expects to introduce later this year. There are 10 ETFs that you can trade commission-free here. This is a very basic trading platform.
eOption (2 stars) didn’t do much last year to enhance its platform, but is expecting to roll out new technology and change clearing firms later this year. It still offers its eOption Direct platform, aimed at more active options traders who want streaming data. Though commissions are quite low—it’s the cost leader this year—you’ll pay $50 per month for the streaming platform.
The firm works with approximately 65 newsletter publishers and enables automatic trading of their strategies.
Cobra Trading (2 stars) offers three platforms, one of which (Venom Trading) is Web-based. You can also use RealTick or CobraIQ, which are downloadable platforms, at an additional fee. You can trade stocks, options, ETFs and futures with Cobra.
Kapitall (2 stars) has an amazing interface that’s based on gaming technology and social interaction, but you can still only trade stocks in a cash account here. There’s no mobile access either. This is a really fascinating research platform, with a variety of ways to search for stocks, but it’s still too narrow to recommend.
How We Ranked Our Best Online Brokers
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) is 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 is 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: The availability and quality of mobile trading and account data are measured here, as well as education opportunities that you can take along for the ride. 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; the ability to trade other asset classes is a plus. 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 screeners. This year, we delved more deeply into the available screeners, awarding points for the ability to customize a filter and generate precise and actionable results. 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. Customizable 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.
Published in Barron’s, March 11, 2013.