Annual Broker Review

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Saturday, March 19, 2011

Making the Right Connection (2011 Online Broker Review)

After swerving between shocking growth as a toddler and a serious mood disorder as an adolescent, online trading is on the verge of a stable maturity. Today it appeals both to hyperactive traders and long-term coupon clippers, to stock and bondholders and foreign-exchange specialists, as well as to those willing to pay up for the latest gadgetry and those just trying to save a few bucks in commissions. Its ranks include asset-management giants like Fidelity and tightly focused specialists with names like TradeMonster.

It’s a big change since 1996, when Barron’s first reviewed online brokers. The top-rated firm that year was Lombard Online Brokerage, which morphed into Discover Brokerage a couple of years later before being purchased by Harris Bank. We were impressed with Lombard’s real-time quotes and account updates, a rarity at the time. Where are they now? HarrisDirect, Lombard’s descendent, closed down and was snapped up by E*Trade.

For our 16th survey we thought we’d try to do something a little different to reflect a more diverse marketplace of brokers and investors. We focused more on helping our readers figure out whether a brokerage is the right home for part—or all—of their portfolio. (Don’t worry, you can still find our favorites on the following pages.) From what we know, Barron’s readers tend to have a portfolio topping $1 million and trade on average 42 times a year; they also have several brokerage accounts. We’ve tried to keep that audience in mind in providing information.

Please click here to read the entire article and view the tables:  http://online.barrons.com/article/SB50001424052970203523604576188781715729822.html

Posted by twcarey on 03/19 at 10:17 AM
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Saturday, March 20, 2010

Newest Trading Play: Screen Savings (Barron's 2010 Online Broker Review)

THE BEAR MARKET IN STOCKS ENDED a year ago, but a lot of online traders and investors apparently didn’t get the memo. They cut back on equity transactions in 2009—despite the 23.5% surge in the Standard & Poor’s 500—and instead demanded more products and services. They got them. More bonds, options, foreign exchange, commodities and mutual and exchange-traded fund offerings; more social networks to combine their talents; more education to wean themselves further from full-service brokerages and more smartphone applications to stay in contact with their portfolios 24/7.

But more than anything, they’ve started to get a break on prices. Commissions on stock transactions dropped at most big firms like Charles Schwab, E*Trade and Fidelity. TD Ameritrade has—so far—kept itself out of the fray, except for 30 days of free trading for new customers (through June 30). Others took a similar route. E*Trade just announced that new clients who deposit at least $2,000 will have commissions charged during their first 60 days of trading rebated for up to 500 stock or options transactions. Rather than imposing a time limit, OptionsHouse gives new customers 100 free trades after they fund an account.

IN BARRON’S 15TH ANNUAL ranking of online brokers, we found no sign that the pace of innovation was slowing down. New products are proliferating. Investors can now work out complicated options straddles, place orders virtually instantaneously and put their money to work in Singapore or Germany while hedging their bets in dollars or euros or exchange-traded funds.
[image] Barron’s Graphics

To make sense of all these new opportunities, online investors increasingly rely on each other. When TradeKing launched its social-networking community in 2005, we were, we have to admit, skeptical. But now, with traders and investors talking things over on a variety of online stages, from Twitter to closed groups, it’s apparent that the communities are an established—and accepted—part of the investing diorama.

“The social-media component for the active trader is something we’re seeing more and more,” says James McGovern, a vice president at financial industry research firm Corporate Insight. “Schwab has its community, as does Zecco, TradeKing, Trade-Station and thinkorswim—and that shows no sign of going away. I imagine other firms that are thinking of doing it will go there.”

Many investors who used to look to financial advisors for hand-holding now seek knowledge elsewhere. TD Ameritrade and Scottrade last year beefed up educational resources, always a strength for thinkorswim. Newcomer tradeMonster hosted more than 200 Webinars and 30 live events. McGovern says, “In tough market times, that’s when people start looking for help, hitting the books and going back to basics.”

Of course, they’re able to tap into these resources via a dizzying array of new technology that now extends to mobile trading. Several brokers launched sophisticated iPhone and BlackBerry applications that enable streaming real-time quotes, and even complex options-order entry.

A number of online brokers improved their rankings over Barron’s 2009 survey by updating their Websites and making key features more accessible. In preparing this ranking, we investigated the offerings, operations and pricing of 22 online brokers this year, looking for the characteristics that set each apart.

We evaluated these rivals across eight categories. Among them: the types of tradable investments; the quality and ease-of-use of screeners that help you choose stocks, options or funds; and the site’s startup process, overall functionality and potential for customization. We recently mentioned to brokers that a reader had asked for an automated-trading journal, and to our surprise, several added this feature in time for our review.

We also looked at how trades can be placed with each broker, such as whether an order can be submitted from a graph or a mobile device. The quality of education offerings and customer service were examined. In reviewing costs, we considered not only stock and option commissions, but the interest rate charged for margin debt and fees for other types of transactions and activities.

Although Barron’s names a No. 1 broker, that doesn’t mean it’s the right pick for your style of investing, so we also name leaders in four other categories—long-term investing, options trading, international investing and high-frequency trading. We also display the lowest- and highest-cost brokers for those who trade a few times a month or several times a day.

Without further ado, then, here are the top online brokers of 2010. A table (How Barron’s Ranks 22 Leading Online Brokers) shows the numerical scores of all 22 outfits. See reviews of all 22, plus additional data, at Barrons.com.

Thinkorswim (http://www.thinkorswim.com) once again dazzled, earning 4½ stars. Last year, we worried about the pace of innovation following the firm’s takeover by TD Ameritrade, but thinkorswim’s president, Tom Sosnoff, put those fears to rest. Sosnoff says that thinkorswim still operates as a separate broker-dealer from TD Ameritrade, mainly because the two brokers have different clearing operations.

Though the platform has a wide variety of tools, there are no added fees beyond commissions, which fall in the middle of the pack. Thinkorswim added free access to Gainskeeper, a cost-basis and tax-accounting tool, last November; it handles not only stock and options transactions but futures and foreign exchange. You’ll find live broadcasts from the S&P 500 pit as well as Shadow Trader, and a live feed from CNBC.

One interesting new feature, rolled out in mid-January, is thinkOnDemand, which uses online retailing giant Amazon.com’s cloud technology. It’s analogous to Nasdaq’s Market Replay feature but takes it several steps further. ThinkOnDemand saves every price tick in every options contract available as well as every listed equity and allows you to stream historical data as though it’s happening in real time. This permits customers to practice their trading strategies against real data. Loading and buffering the data can take 1-2 minutes; Sosnoff says most of the traders using this feature launch it after the market closes to practice trading or to check on how an order was filled. Charting functionality was added at the end of February.

Another new thinkorswim feature is Prodigio, which offers drag-and-drop trading-model tools with back-testing capabilities. Prodigio can run either inside the thinkorswim platform, or it can be launched independently. A menu on the left side of the screen allows access to tools such as trade actions, type of data, logical operators, technical analysis studies, candlestick patterns, and mathematical equations. Using the Java-based system, you connect the selected tools to create your trading model. Once you’ve developed a model that you want to use, you can connect it to your thinkorswim account and generate orders. It’s an amazing piece of technology, but not for an amateur or the timid.

Thinkorswim offers great customer service and a wide array of educational offerings. You can access the tools via its downloadable-software platform, and most are also available on the Web. Many of these powers have been pushed through to the thinkorswim platform for TD Ameritrade customers, which we’ll discuss later.

MB Trading (http://www.mbtrading.com), just a whisker behind thinkorswim in total points, also earned 4½ stars. It got there by spiffing up the platform that we so appreciated last year, renaming it MBT Desktop and adding an excellent Web platform, MBT Web 2.0, to the mix. It also released an upgraded software application, MBT Desktop Pro, which features an easily customizable charting application. The charting functionality in the Pro platform allows you to write your own custom indicators, and overlay those on your chart.

Another feature, MBT World, is accessible from all of the firm’s trading platforms and includes a social-networking feature, plus Webinars about MBT products and partner products, not to mention a Wiki with frequently asked questions about MB Trading. Within the community feature is a link for submitting ideas that customers can vote on.

One intriguing offering in the MBT suite is its alerts. You can write custom-alert scripts with hundreds of possibilities, including technical and fundamental indicators. When an alert goes off, you can reset the trigger quickly and get back to your trading. You can also set up alerts so that the details of what triggers them are hidden—so you can trade or even sell them to other MBT customers.

MBT’s basket-trading functionality lets you create a group of orders and execute them simultaneously. The group of trades can be closed as a basket, or closed individually. The Advanced Options Strategist has 64 strategies built in, and you can create your own. Each strategy is illustrated with a graph and an explanation of the basics, as well as its risk/reward characteristics. After you’ve selected an underlying stock and a strategy, the tool figures out the appropriate way to implement the plan. You can set different default-volume quantities for stocks, futures, and options orders. Your order-entry screen will display these defaults, depending on what you’re trading.

When we talked up the idea of a trading journal to log activity, MB Trading came back with its new Lightwave platform. Lightwave’s opening screen shows trading pressure for every asset class you can trade at MB Trading, and includes a variety of stock and options scanners. You can use any of the MB Trading platforms with a single login, and switch among them as you please. We would love to see the Lightwave features integrated into the Web and Desktop applications.

“Our main objective is to continue to be a low-cost provider in all major asset classes that offers solid customer support and software solutions for everyone from beginners to advanced traders,” president David Lipsett says. MB Trading seems to be meeting its objective.

Below are the nine online brokers who earned a very respectable four stars, together with both their pluses and minuses.

Interactive Brokers (http://www.interactivebrokers.com)

Pros: It still leads the pack in access to global markets, with access to bourses in 17 countries on five continents, and cost-consciousness. Consulting outfit Transaction Auditing Group showed that IB customers enjoyed quite a bit of price improvement—a 31-cent advantage per 100 shares and 21-cent advantage per options contract—compared with the industry average over the second half of 2009. Its trading platform, Traders WorkStation, was enhanced with added portfolio analysis and risk-management tools, plus expanded access to real-time streaming news. Short sellers can tap a wide array of items, and customers can now trade in multiple currencies as well. Education offerings are wide-ranging and well-written. The mobile applications are very usable and offer streaming data.

Cons: Although improved, TWS is still not an intuitive platform to use. The learning curve is steep. This is a broker more geared toward professional traders, so buy-and-hold investors should steer clear.

TradeStation (http://www.tradestation.com)

Pros: The go-to broker for those who develop their own trading systems, though competition in this field is heating up. On top of all the modeling functionality built into TradeStation’s platform, the firm added ways to test slippage (the difference between the expected price of a trade, and the price at which it actually got executed) to their models. Slippage is a major factor for those trading foreign exchange, as the spread changes quickly in volatile markets. The ability to create your own parameters when testing an idea is implemented well on this platform. A new feature is Radar Screen, which is a real-time opportunity scanning tool. TradeStation Support center offers a lot of educational information, and the recently launched Strategy Network allows strategists to sell subscriptions to their calculations. As TradeStation Vice President Janette Perez says, “You cannot outgrow our platform.” For new accounts opened by March 31, TradeStation will waive monthly platform fees for four months.

Cons: It’s a lot of technology, and not for the casual trader. A platform fee of $99.95 per month is charged for those who trade below certain levels. Bonds can only be traded with a live broker.

OptionsXpress (http://www.optionsxpress.com)

Pros: OptionsXpress underwent a site redesign that cleaned up navigation considerably. The firm allows its customers to trade a wide variety of financial products in a single account. The suite of tools has been consolidated into “hubs,” so that they’re much easier to find and use. In addition, optionsXpress rolled out a variety of streaming tools and data, including streaming options chains and customizable charts. You can enter and modify an order from a chart, which is a function many technical traders want. The mobile application, OX Mobile, is well designed, with streaming real-time data, charts, and watch lists, and stock, options, and futures trading. CEO David Fisher says, “We found that customers are doing significantly more trading through these phone-based apps than we thought possible.” Portfolio margining calculations help traders who hedge their positions keep their margin costs down. You can see how much price improvement you got on a particular order when you look at your order status screen, which is a nice touch.

Cons: One of the few brokers left with tiered pricing; $14.95 per trade puts them near the top of the stock commissions list.

Fidelity (http://www.fidelity.com)

Pros: Fidelity continues to offer a stable platform with a wide variety of products that can be traded online. It made a number of changes to its pricing structure last month, eliminating the tiered commission structure, and offering 25 BlackRock exchange-traded funds at no fee. A nicely laid-out and informative Stock Research Center was introduced last fall, along with an international trading center that lets customers trade in 12 overseas markets and eight currencies. The Fixed Income Investments center is an excellent place to learn about, and choose, bonds for your portfolio. Active Trader Pro (ATP), Fidelity’s downloadable software platform, received charting enhancements that include customization options. ATP also updated its options features, and now includes an Option Pairing Summary, with the ability to view options based on underlying security, strategy or expiration. Overall this is a very deep offering with numerous portfolio analysis tools.

Cons: The tools are divided across several platforms. To make the most of Fidelity’s offerings, you’ll have to use both Active Trader Pro and the Website.

TradeKing (http://www.tradeking.com)

Pros: The firm is still the king in integrated community resources on its trading platform. Expanded education resources include a variety of Webinars, an updated edition of the Options Playbook, 13 “all-star” trading bloggers, and an area called “The Rookies Corner” in the online-learning center. TradeKing also went into the fixed-income market with vigor, launching a bond-screening tool and an interactive table of fixed-income investments that shows users a snapshot of the entire marketplace, and what yields are available in various time frames. Other enhanced tools include deeper quote pages, more options data, and much-enhanced stock screeners. The new Trading Dashboard brings the Trader Network community resources right into the TradeKing platform, and is nicely customizable. You can set up a trading journal at TradeKing through the Trader Network as well.

Cons: There is some portfolio analysis functionality that is not available unless you use the Trader Network. You can’t select a tax lot online when closing a position.

TradeMonster (http://www.trademonster.com)

Pro: This online broker has created a very useful and customizable platform, especially for options traders. The recently launched TradeCycle illustrates the steps a disciplined trader should follow when choosing a trade. The folks at tradeMonster consider this cycle a key to proactive investing. The steps all use key functions of the tradeMonster platform, such as research tools, strategy-selection tools, ways to test strategies and exit planning. The charting features are enhanced frequently, and include streaming implied volatility for every expiration and strike price, displayed against a 30-day average. Trade-Monster maintains its own volatility database, which is a key component in choosing an appropriate options strategy. TradeMonster also added a trading journal in time for this review, which allows you to create an entry that captures the values for several indices, plus the underlying price and implied volatility, at the point an order is filled. You can attach notes to it and keep track of what you were thinking when you got into that trade. TradeMonster added mobile access in the last year as well. The firm has low margin rates.

Cons: Cannot select a tax lot when closing a position.

OptionsHouse (http://www.optionshouse.com)

Pros: The site is packed with tools for options traders, and it has added some for stock traders, too. The core of the Options- House platform is its risk viewer. President George Ruhana says, “We really want people to understand the risk associated with their positions.” He notes that a customer may have a position that is suitable on the basis of his margin but inappropriate for the size of his account. The potential effects of a change in the market on your positions, and your overall portfolio, are nicely laid out and understandable. Ruhana acknowledges that a lot of his customers have accounts elsewhere, and bring assets to OptionsHouse for its options-related tools and low stock commissions. Clients place approximately 100 trades per year. The firm launched a mobile-Web application in October 2009 that handles trades, order management, and portfolio management. An iPhone-specific app is planned for later this year.

Cons: Very options-centric, as the name would suggest. A change in options commissions from flat-rate to per-contract went into effect in December.

TD Ameritrade (http://www.tdameritrade.com)

Pros: This is one of the places you can still go for “one-stop shopping” and is benefiting from its takeover of thinkorswim. The toolset available to TD Ameritrade customers was much enhanced by the launch of thinkorswim from TD Ameritrade last year. Anyone interested in higher-level options data, research, and charting should be moving over to the thinkorswim platform. On the Website, one of the key strengths of having a TD Ameritrade account is the wide range of third-party research that’s built into the platform and easily available, from outfits like Credit Suisse, S&P, Market Edge, Ford Equity, First Call, Vickers Insider Trading and Morningstar. The order entry “snap ticket” was updated this year to include streaming quotes and mini-charts. The Website built in a bit of community function by displaying the symbols and news articles that have been most viewed by the client base that day. We expect to see the technology continue to be enhanced with thinkorswim tools. Single-stock futures, futures, and futures options will be added in the next few months.

Cons: Not engaging in the “price wars,” which is a mixed blessing. Stock transactions remain at $9.99, and options fees are near the top of the list. Many tools segregated on separate platforms.

E*Trade (http://www.etrade.com)

Pros: E*Trade is another one-stop shopping destination, and features terrific mobile-trading applications. The broker has enhanced a number of services, including fixed income, research, retirement planning, active trader and advice-based tools. It’s also implemented some navigation improvements, allowing for greater site customization and focused on better customer service. Mobile Pro for the iPhone is one of the best mobile-trading apps we’ve seen, and includes streaming video and options quotes. As the year goes on, E*Trade plans to improve its mobile applications further; the firm is being rewarded by a huge increase in trades placed via mobile devices. Portfolio margining is in beta test and should be available by summer.

Cons: The Website could still use some streamlining, as navigation is occasionally confusing. Too much segregation of toolkits on different platforms.

What’s still to come? More investment opportunities; more mobile applications; more integration of various tools onto a single site; and more education to support those intrepid investors who’ve sworn off full-service brokers. Oh yes, there’s likely to be some more price cutting as well.

ChoiceTrade (http://www.choicetrade.com) 3½ stars

Pros: Its recently-launched Web platform update, Flex Trading, is aimed at less-experienced traders who still want a lot of tools. The application is modular, encapsulated in widgets that you can move around and resize. Very nicely designed trade ticket for stocks and options. Downloadable application routes orders very efficiently. Low-end Web platform is rather sparse; customers should bypass that in favor of the Flex app.

Cons: Minimal feature crossover from one platform to another. Pricing is different for Web platform versus direct access.

Muriel Siebert & Company (http://www.siebertnet.com) 3½ stars

Pros: Excellent fixed-income resources, backed by a conservative and financially stable firm. Clients have access to numerous original bond issues and receive personal attention when adding to their fixed-income portfolios. Firm has very low margin fees. Muriel Siebert, president and CEO, says, “Siebert has a special appeal to investors for whom peace of mind, safety, security, a variety of alternatives for diversification and a choice among multiple research and analytic tools mean more than paying the lowest commissions.”

Cons: Published pricing structure is very high though company officials insist that fees are negotiable. Website navigation is difficult.

Lightspeed Trading (http://www.lightspeed.com) 3½ stars

Pros: Low fees for stock and option trading make this an attractive place for very active traders. Range of offerings increased this year with the addition of foreign-exchange and complex options, plus Lightspeed Spotlight, an online social-networking community. Very fast trade executions and good customer service.

Cons: No bonds or mutual funds, but that’s not the customer they’re trying to attract. Must choose either Web or direct-access platform as customers cannot switch back and forth at will.

Charles Schwab (http://www.schwab.com) 3 stars

Pros: A wide range of products that can be traded. StreetSmart Pro, Schwab’s direct access software platform, offers some terrific filtering tools and the ability to enter conditional orders and some complex options. Schwab has many offices around the country, a plus for those who want face-to-face contact. Live-education events are well-run.

Cons: The Website is feeling dated, and navigation gets more difficult as new features seem to be tacked on rather than incorporated into the structure.

Scottrade (http://www.scottrade.com) 3 stars

Pros: Added a huge amount of educational resources, both online and in branches. Nearly 450 offices around the country that provide customers with a local resource for education and support. Rodger Riney, Scottrade’s founder and CEO says, “We have always focused on providing exceptional customer service and feel it is important to have branch offices where our customers live and work.” Just added some international trading.

Cons: Separate platform (provided by OptionsHouse) for complex options trading. Like several other brokers, there’s no single place to go to make use of all the firm’s offerings.

Zecco (http://www.zecco.com) 3 stars

Pros: Much improved Website along with company focus on improving support. Quote display, plus access to enhanced research, are much easier to use. Zecco added options features in the last year. We also appreciate the display of insider-trading activity on price charts. The Zecco community is nicely integrated into the new Web platform, including the ability to share screeners. First 10 stock trades per month are free for accounts with $25,000 or more.

Cons: Can trade forex but it’s a separate account. Unable to enter conditional orders.

SogoTrade (http://www.sogotrade.com) 3 stars

Pros: Added options trading in the fall of 2009. The options platform includes streaming real-time chains, multi-leg strategy chains, integrated analytics, price modeling, risk/reward assessment, and education in partnership with the Options Industry Council. Commissions are well below average. SogoTrade has launched their Webinar education series and plans to add to it as the year goes on.

Cons: Cannot trade mutual funds or bonds. No conditional orders.

Terra Nova (http://www.tnfg.com) 2½ stars

Pros: Offers the RealTick platform to customers, which was one of the pioneers in providing streaming data and charts. RealTick has a lot of competition now. InstaQuote platform offers a variety of order types and options analytics.

Cons: The firm has no proprietary platforms and recently dropped one of its third-party trading applications, forcing a migration of the remaining customers to a different platform. All platforms carry fees of $100/month and up, depending on trading level. There are better deals out there.

Just2Trade (http://www.just2trade.com) 2½ stars

Pros: Low commissions and margin fees. J2Trader added real-time streaming quotes in 2009; streaming charts will be added by summer. Another addition this year is a mutual- fund screener. Just2Trade has Maxit tax accounting built in.

Cons: No complex options. J2Trader only allows 15 symbols per watchlist. Trading application is very basic.

Firstrade (http://www.firstrade.com) 2½ stars

Pros: Developing a new trading application, which will be launched in late spring. That’s a good thing because the existing Website is tired and in need of an update. Firstrade can be completely translated into Chinese, if desired.

Cons: Current trading application is outdated. All reports show delayed data rather than real-time.

Cobra Trading (http://www.cobratrading.com) 2½ stars

Pros: Cobra IQ and OmniPro platforms offer streaming quotes and charting. Phones are answered quickly and customer service is polite. You can set up a custom-commission schedule. Cobra brokers will help you locate securities to sell short.

Cons: Limited screeners and search tools. Cobra’s Web platform is extremely limited and has almost no tools. Software platform fees are high in comparison to other, more powerful, platforms.

Posted by twcarey on 03/20 at 01:58 AM
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Saturday, March 21, 2009

Blue Chips -- Rating Online Brokers 2009

It’s easier than ever to have it your way when trading online, thanks to a host of new tools. We rate the 25 top brokers to help you find the one that suits your particular style.

THE DOW JONES INDUSTRIAL AVERAGE DROPPED a heart-stopping 34% in 2008. Investors pulled $194 billion out of mutual funds. Venerable Wall Street brokers Bear Stearns and Lehman Brothers went belly-up, and Merrill Lynch lost its independence to Bank of America. So how did online specialist Interactive Brokers manage to pick up $100 million in new customer assets in 2008 or its rival thinkorswim see its assets jump to $3 billion from $1.1 billion?

It turns out that some wealthy investors decided that their well-heeled, active money managers and fancy financial advisers didn’t know much more than they did about making money in bear markets, and they switched from full-service brokerages to self-directed discount brokers—where they are also less likely to run into the likes of Bernie Madoff.

The bear market happened to coincide with continued acceptance of dazzling technology in virtually every corner of our lives. A November 2008 survey of wealthy Americans—with at least $1 million in investable assets—showed that over three-quarters use the Internet to gather financial-management information, while more than half use it for stock trading and/or banking transactions. The study, conducted on behalf of U.S. Trust, noted that 40% use online methods to communicate with their financial advisers.

This group is increasingly going mobile, too. Fifty-two percent of respondents to our survey who have more than $10 million in investable assets report that they use a mobile device to view financial information. The top brokers this year in our survey also give their customers a variety of ways to stay connected using mobile devices.

That suggests just how rich and deep online offerings must be these days—giving investors access to everything from U.S. large-cap stocks to momentum names to four-legged option plays to shares on the Mumbai bourse via every conceivable electronic medium. As a result, in addition to our main ranking of online brokers, we provide more focused rankings for particular styles of investing and trading.

We investigated the offerings, operations and pricing of 25 online brokers this year, looking for the characteristics that set each apart from its competitors.

Although Barron’s names a No. 1 overall broker, this firm might not be the right one for your style of investing, so we also present the leaders in four other categories—long-term investing, options trading, international investing and high-frequency trading—that may better suit you.

We subjected these rivals to a rigorous evaluation across eight categories. These include the types of tradable investments and the quality and ease-of-use of screeners that help you choose stocks, options or funds, as well as the site’s startup process, overall functionality and potential for customization.

We also looked at the various ways that trades can be placed with each broker, such as whether an order can be submitted from a graph or a mobile device. The quality of education offerings and customer service were examined. In reviewing costs, we considered not only stock and option commissions, but the interest rate charged for margin debt. On the flip side, we compared the monthly income you can generate on your idle cash—which is minimal this year.

SO WHO IS ON TOP THIS YEAR?

Online Brokers Ranked

thinkorswim (http://www.thinkorswim.com)

We gave it 4½ out of a possible five stars, and the highest overall score. The company continues its blistering pace of innovation while offering customers multiple points of access, accompanied by great education tools. Customer support is top-notch, and a wealth of trading information comes at you from a variety of media while you are logged in to the platform.

The company had zero downtime in 2008; quite a few other brokers hit bumps in the road during heavy trading days as the market plummeted. “Even with the market down 50%, our customer assets are at an all-time high,” claims thinkorswim’s president, Tom Sosnoff.

Thinkorswim’s trading platform, which is easily customized, allows you to trade everything from stocks to complex options to futures to foreign exchange, all on the same screen. (The firm takes top honors for options and frequent traders, too.)

The platform is clean and easy to navigate, in spite of its complexity. Orders are filled very quickly, and customer support is staffed around the clock.

Analyzing trading possibilities from numerous angles is one of the key pieces of the thinkorswim technology. You can back-test an options-trading strategy using historical data back to 2000. The charts have a very cool artificial-intelligence algorithm built in that displays the expected future price of a particular security out 15 minutes, gradually expanding that to as much as two hours out as the trading day goes on. There is built-in streaming video and audio that you can tap into while the platform is running. “Retail customers want content,” Sosnoff says. “We’re pushing through live video, squawk boxes, trading education and a lot more.”

There is a cloud in the sky, however, which is the recent acquisition of thinkorswim by TD Ameritrade, with its very different look and feel as well as pricing structure. The thinkorswim principals have committed to staying with the combined firm for at least three years following the close of the acquisition. We will scrutinize any changes closely.

MB Trading (http://www.mbtrading.com)

Also earning 4½ stars (but a slightly lower numerical total) was MB Trading, which spent most of 2008 spiffing up its MBT Navigator software. It also launched a very full-featured Web application. The new Navigator overcomes one of our previous criticisms, as it includes integrated charts while continuing to supply very fast trade executions across multiple markets. The Advanced Options platform offers more than 90 preset strategies that let you quickly find opportunities and place trades.

MB Trading recently opened the virtual doors to MBT University, whose curriculum includes a forum, Webinars, and a trading “wiki” (an interactive ideas forum). The Webinar events teach customers about the trading platform, and also include discussions about the markets and third-party software products (such as eSignal and Ninja Trader) that plug into MBT’s execution-management system.

The recently launched, Web-based Navigator lets customers trade from a browser, and the neat wireless BlackBerry application allows for on-the-go trading and account monitoring. MB Trading is a fairly small outfit—with a tiny fraction of the customer base of Fidelity or Schwab—that prides itself on customer service. The trading application plugs into quite a few third-party analytical and charting programs. Now MB Trading has added its own analysis and charting, built in for free for customers. It is worth checking out.

MB Trading doesn’t have a large inventory of bonds to trade, nor does it offer CDs, so it isn’t the best place for a one-stop shopper.

Below are our eight four-star firms and their various pluses and minuses.

TradeStation (http://www.tradestation.com)

Pros: Last year’s winner hasn’t lost much ground. The firm’s customers are very active traders—placing an average of 1.5 transactions per day—who use its deep historical database and technical tool kit to develop strategies, and test them against historical data before trading. Customers actively trade a variety of items, including equities, equity and index options, electronic futures contracts (such as e-minis), single-stock futures, forex, or any combination of these asset classes. The scanners allow customers to check out the entire TradeStation symbol universe using customizable criteria based on a database of more than 500 fundamental fields, as well as price and volume data. There is an active community that trades trading ideas and strategies, and suggests, then votes on updates to the platform.

Cons: It is a lot of technology for the average trader. The $99.95 monthly platform-access fee (plus $59.95 for the real-time screener) will deter those who trade infrequently.

Interactive Brokers (http://www.interactivebrokers.com)

Pros: IB is once again the low-cost leader and international star. It gears itself for professional and semiprofessional traders, investors, hedge funds, brokers and advisers. The contract-search feature, new this year, lets you search by symbol or company name, generating a list of products you can trade. For instance, if you type in “Ford,” you will see everything available—options, futures, stocks and bonds. Overseas markets appear, too. IB’s charting application was significantly improved this year. For those who trade huge blocks of stock at once, IB’s ScaleTrader lets you break the order into smaller components and send it through in smaller pieces.

Once your order is set up, you can watch it on the Scale Progress table. We also like IB’s forex-trading screens, the ability to create your own index basket of stocks, the wide range of international equities, futures and option, and the new options portfolio algorithm.

Cons: Nonprofessionals still complain that the Traders Workstation is difficult to handle, so if you aren’t a very frequent, around-the-world trader, this isn’t the broker for you. There is limited personal service at IB, but you aren’t paying for it, either.

Fidelity Investments (http://www.fidelity.com)

Pros: This is the top-ranked (mostly) Web-based broker this year, although the asset-management giant scores a lot of points for features available in its Active Trader Pro downloadable application. (We rank it highest for long-term investors). Customers can choose from three platforms to access their accounts and place trades, but the firm is moving toward combining all of those tools. That would be a most welcome change. The firm is taking some of the advanced capabilities of its top-end platforms, such as OptionsTrader Pro and WealthLab-Pro, and migrating them to the broader audience that uses Fidelity.com. One of the top features available to Fidelity customers is research, which is closely tied to its education offerings. We also like the ability to automatically roll a mature CD to one with the same maturity. The Active Trader service team also receives high marks.

Cons: Certain pieces of the Fidelity.com Website still update overnight rather than in real time. The top-level offerings are split over three main platforms; we look forward to the integration we hope is coming.

OptionsXpress
(http://www.optionsxpress.com)

Pros: The new customizable myOX portal lets customers create their own launch pad for the optionsXpress experience. There are 16 modules you can use and arrange in any configuration. You can create multiple views, and switch from one to the other using tabs at the top of the myOX screen.

Beyond the modules, you can bring in outside information using RSS feeds. Trading is a click away. Whenever you click on a Bid or Ask, it will take you to the trade screen. The newly reorganized Research hub offers a single access center for all kinds of market info. We also like the way all the trading tools were rearranged, and made much easier to find. This kind of functionality is standard with most of the software-based brokers, but is just starting to creep into the browser world. The Education center mixes together charts, video, real examples with screen shots of how to use the optionsXpress platform to perform specific tasks, and third-party content, all in an effort to walk through each topic in an interesting way.

Con: Commissions are high.

TradeKing (http://www.tradeking.com)

Pros: The TradeKing community is well-integrated into the trading platform, so customers can get ideas from one another, as well as from the research offered on the site. “Activity in our social-trader network has risen dramatically, indicating to us that when uncertainty rises, so does one’s desire to connect with other investors and see what others are thinking about both near- and long-term opportunities,” says Chief Executive Don Montanaro.

TradeKing is big on education as well, with a new series of Intelligence Reports available from a newly launched TradeKing Learning Center. TradeKing is also expanding its fixed-income offerings, including a bond-specific trading blog by Angelo Benedetto, TradeKing’s director of fixed income. Maxit, which helps customers figure out the tax consequences of a trade, is free. All this, and costs are on the low side.

Cons: Limited mobile access. Cannot stage orders.

OptionsHouse
(http://www.optionshouse.com)

Pros: As its name suggests, Options House has a lot of great tools for the options trader. Backed by market maker Peak6, this broker lets its retail customers use quite a few professional-level tools. Building a spread is very intuitive on this system, as is rolling a call or put from one strike to another. The site’s motto is “Fast matters,” and that goes for everything from finding possible trades to populating an order ticket to executing the trade itself.

Portfolio-analysis tools are top-notch here, too. The Risk Viewer includes a what-if calculator showing what could happen based on various market scenarios.

Options House also offers the Maxit tax-management tool for free. Although this is a Web-based platform, it has the flexibility and power of many of the software platforms.

Cons: No mobile access yet. However, the company says it is coming later this year. Limited fixed-income and mutual-fund offerings.

ChoiceTrade (http://www.choicetrade.com)

Pros: ChoiceTrade’s Direct Pro is a robust software platform that offers basket functions (like splitting, say $25,000, among Dow industrial-member stocks), multiple routes, and has dark pools (off-exchange areas) embedded in the system. It is very flexible and customizable, and has terrific risk-management tools to keep you out of trouble. Everything streams in real time. You can route your order to any of the available electronic-communication networks (ECNs). Commissions are $5 for stock trades of any size. Excellent customer service.

Cons: The current Web-based platform is relatively weak. We got a look at a beta version of the new platform that will launch in the next quarter, and it is much better. Fixed-income offerings are limited.

E*Trade (http://www.etrade.com)

Pros: E*Trade updated many pieces of its Web-based platform over the last year, especially charting and options quotes. For options, it added charting and the ability to view pricing and open interest in a particular strike. You can overlay a stock chart or implied versus actual volatility levels as well.

For stock charting, you can do a lot more technical analysis, and compare an individual stock to an index, a sector, or a competitor. For long-term investors, E*Trade added a Retirement Quickplan, which goes through a Q&A with you: what you have set aside already, how much you can continue to save, and what you think your retirement expenses will be. This tool creates an action plan.

E*Trade has also updated its fixed-income center, and significantly changed bond pricing last summer. The firm has gone mobile in a big way, and reports that BlackBerry-based trading doubled between July and December of 2008. Next up: an iPhone application in April.

Cons: Like some of the other older Web-based brokers, the tools seem to be scattered across multiple platforms.

THE GROUP THAT FOLLOWS EARNED less than four stars, which doesn’t make them a bad place to stash your investment account since some of the things we rate may not matter to you.

TD Ameritrade
(http://www.tdameritrade.com)

Pros: Ongoing site enhancements including the launch of WealthRuler, a retirement calculator and Portfolio Planner, which helps you analyze your current portfolio, design an asset allocation strategy that fits your goals and manage that portfolio over time. Another new feature in the last year is the Bond Wizard, a tool that helps investors find CDs and bonds that best fit their strategy. The site has added quite a few nice features for the one-stop shopper, and just missed making the “Best for Long-Term Investing” list.

Cons: Costs are higher than average. This broker received a great deal of criticism for offering a money market fund that “broke the buck” last fall.

SiebertNet (http://www.siebertnet.com)

Pros: A great place for putting together a top-notch fixed-income portfolio. We also like the new Summary Positions page with imbedded quick links to pop-up tax lot detail to complement the Positions Detail (Unrealized Gains/Losses). The site added an “Analysts Insights and Ideas” page with research content from Standard & Poor’s and Thomas Weisel in addition to Argus, Decision Economics and Barclays Capital, making its already deep research offerings even more so. You can trade internationally via live broker; we expect to see online international trading soon. SiebertNet is ranked on our “Best for Long-Term Investing” list.

Cons: The commission structure for options trading is expensive and outdated. If they switched to straight per-contract pricing, like every other broker in the survey, Siebert would be back in the four-star category.

Charles Schwab & Co (http://www.schwab.com)

Pros: Most welcome in the last year is the overhaul of the site that launched in October. Schwab’s Real Life Retirement Services provides a complimentary personal portfolio consultation, income solutions and an online retirement center with additional tools, advice and guidance. StreetSmart.com, Schwab’s active trader web-based offering, features new tools to help profit from volatility in the markets, along with bracket order technology, customizable trading alerts, advanced charting tools, intra-day realized gain/loss tracking, direct access shorting and good-until-cancelled capabilities on complex options trades. We also like Schwab’s ETF screener.

Cons: The package of features is spread across two Websites and a downloadable platform, making it unnecessarily complex to use them. Costs are high.

tradeMONSTER
(http://www.trademonster.com)

Pros: New kid on the block, having launched in November, supplies a dazzling array of tools on its very easy-to-use website. You can access all of the tools and trading tickets with one or two mouse clicks. There are a lot of terrific features for options traders, including and implied volatility (IV) constellation that shows IV for future strikes. This tool gives you a clue about changes in IV based on open interest in a particular option. We also like how tradeMonster’s trade tickets encourage you to set up an exit strategy when you enter a new position. We expect great things from this site over the next year.

Cons: It’s tough to be a new broker in this market. The company is backed by venture capital; we hope they make it through.

Lightspeed Trading (http://www.lightspeed.com)

Pros: A broker to consider for small hedge funds, very active traders and trading groups who primarily trade stocks. The trading infrastructure and risk management tools are very good on the Lightspeed Trader platform and Lightspeed Risk real-time risk management application. All executions are customer-routed. The new quote server, rolled out over the summer, provides extremely fast quotes and Level II depth of market data. Another new feature is the firm’s algorithmic trading solution, Lightspeed Gateway. The Block Trade alert lets you know when an order of 10,000 shares or more has been executed.

Cons: Complex options have to be entered one leg at a time. Limited range of offerings, but that shouldn’t bother those who are primarily interested in stock trading.

Scottrade (http://www.scottrade.com)

Pros: Highly unlikely participant in any form of industry consolidation as management has repeatedly said that the firm is not for sale. Over the last year, Scottrade focused heavily on increasing options-trading capabilities, enhancing customer education, and growing the branch network. The new options platform, OptionsFirst (http://www.optionsfirst.com), is licensed from OptionsHouse so it has the same advanced options screening and trading functionality. Lots of investor education possibilities, from live events held at one of Scottrade’s branch offices to the new Knowledge Center on the firm’s Website. Reasonably priced.

Cons: Separate Website to access OptionsFirst platform. Scottrade also has its various key functions spread across multiple platforms.

AB Watley
(http://www.abwatley.com)

Pros: Customers can use either the Ultimate Trader, a downloadable application, or the web-based Watley Trader. Good data feeds keep the real-time charts and quotes accurate. The firm does not pursue routing destinations that bring in payment for order flow.

Cons: Ultimate Trader hasn’t had an overhaul in a while, so it is starting to look dated compared to its more innovative competitors. Customers have to log into the website to view account activity.

Zecco (http://www.zecco.com)

Pros: Zecco has scaled back its “free trade” offer, but under the assumptions we make when putting together our survey, our theoretical customer still qualifies. You get 10 free trades per month when you have $25,000 or more in your account now. The site’s online account opening task was made much simpler this year, plus the firm added a new quotes and research center. There are also now options analytics available and automated spread trading.

Cons: You have to sign up for Gainskeeper (at an additional charge) to get any performance reporting or tax planning. The site is covered with ads, which gets annoying.

SogoTrade (http://www.sogotrade.com)

Pros: The firm moved away from its former Sharebuilder-like model and is now pursuing active traders more aggressively. Among the updates to the Website is the Trading Center, which is a single page that offers order entry, quotes and fundamental data, charting, links to research and news, a full position listing, and order status. Pricing was simplified considerably; stock trades are $3.

Cons: Cannot trade anything except stocks on SogoTrade, though they plan to add options trading in 2009.

Just2Trade (http://www.just2trade.com)

Pros: Cheap. J2Trader, a Java-based applet, supplies streaming real-time market data and has a built-in order ticket. Stock screener, supplied by Recognia, allows you to search for stocks that have triggered a technical alert, such as a head-and-shoulders bottom or a bullish continuation wedge.

Cons: Cannot trade complex options, though the firm expects to add this capability later in the year. Many portfolio reports on the Website are delayed overnight rather than real-time. Website navigation is clumsy and it spawns a lot of new windows.

Firstrade (http://www.firstrade.com)

Pros: Thanks to an agreement with a new data vendor, Firstrade now has enhanced charting, a comprehensive events calendar, SEC filings, and insider holdings. The site has improved its alert functions, provides better quotes, and has much better stock and options screeners. Most fees are reasonable. Good support for Chinese-speaking customers.

Cons: Website navigation is very clumsy. High margin rates.

StockCross (http://www.stockcross.com)

Pros: Strategy Builder explains and helps clients build complex options strategies. The customizable web trading platform features a dashboard, streaming data, advanced order capabilities, complex option trading with a fluid option strategy builder, and a real time cost basis tool.

Cons: Fees are very high. Everything except stocks and options must be traded via live broker. No real-time quote during order entry; you have to get to the Preview screen for a quote. No wireless access.

WellsTrade (http://www.wellsfargo.com)

Pros: Easy to manage all your Wells Fargo accounts in one place. One-hundred free trades per year offered to customers who have $25,000 or more in a particular type of account at the bank (PMA Package). The site allows for tax-lot trading capabilities, as well as the ability for clients to choose customized views for their account positions and group their accounts.

Cons: All data are delayed except for clients of Wells Fargo Private Bank. No streaming data, no wireless access, limited options functionality.

Banc of America (http://www.bankofamerica.com/investments)

Pros: Like Wells Fargo, this site makes it easy to manage all your banking accounts in one place. Transfers between accounts are very simple. When opening an IRA, an interactive sales experience bundles an initial mutual fund purchase within the IRA account opening process.

Cons: Complex options must be traded through a live broker. Limited fixed-income investments.

ShareBuilder (http://www.sharebuilder.com)

Pros: A good place to set up if you want to make regular stock purchases on a monthly or weekly basis. Customers tend to be less financially savvy, but like the simplified, long-term, more conservative and automatic approach to saving through investing.

Cons: Very limited options functionality. The site is all about a long-term strategy of making scheduled investments, so there is very little real-time data. Positions reports update overnight.

What’s next?

On our wish list for the next year is improved cost basis reporting, which will soon be required by the IRS. Too many brokers have inadequate portfolio performance reporting, and weak tax reporting. We would also like to see the brokers that offer multiple platforms come up with a way to make all their tools available to their customers in a single platform. We’re looking at you, Schwab, E*Trade, Fidelity and Scottrade.

Investors may have noticed that the return on their cash balances has dropped close to zero as the prime rate has dwindled. Interest on bonds and CDs is in the tank as well. Investors may have to turn to other means of making money on their cash, perhaps by selling calls against their long stock positions (covered calls). Brokers that make it easy to spot covered call opportunities should make an effort to reach out to those customers who are not using this strategy and help them figure out if it works for them.

We also expect to see more software-like tools offered by Web-based brokers, and a major move towards mobile trading. Given the volatility in the markets, investors want access to their accounts even when they’re away from their computers.

2009 opened with the news that TD Ameritrade was purchasing thinkorswim, and just about everybody in the industry believes that is the first of many consolidations to come in the next year. Muriel Siebert, president of SiebertNet says, “The re-emerging trend of consolidation among all kinds of financial-services firms resulting from the financial crisis will further focus consumer attention in this direction.” Expect to see some of the smaller brokers absorbed by the larger players this year.

Several brokers believe that the ongoing consolidation can only help them as customers of firms that get taken over move their assets to a broker they feel will serve them better. The president of one of the larger brokers told me, “It is safe to say that we receive more new account inquiries as a result of industry consolidation than for any other reason.”

Published in Barron’s, March 16, 2009

Posted by twcarey on 03/21 at 02:46 PM
Published in Barron'sAnnual Broker Review • (0) CommentsPermalink
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