As critics point out, they do have shortcomings: CEFs can be illiquid, and it isn’t possible to write options on them. Many ETFs do have options available, which can be used to leverage a position.
CEFS ARE ACTIVELY managed, while ETFs are usually based on a broad market index or specific sector. CEF expense ratios, on average, are higher than the 1% or so that most open-ended mutual funds charge. One advantage that CEF managers have over their open-end counterparts is that they don’t have to worry about shareholder redemptions when the market goes south because there are only a finite number of shares available. That makes them more suitable for relatively illiquid asset classes, such as foreign securities and certain fixed-income strategies. However, you might want to be cautious about funds with long-term bonds at the moment.
I’ve been using a half dozen or so CEFs to generate income for two relatives who’ve handed me their portfolios. (I am not a certified financial planner, but three decades tracking financial technology has helped me develop certain skills.) My introduction to CEFs came at Barron’s. I would sort through our lists searching for those trading at a discount (because I like a bargain). The Barron’s list these days also can be found online under Market Data by clicking on the Stock and Fund Tables menu choice. You can choose the weekly Closed End Fund report, or the quarterly table. Unfortunately, these tables are not sortable—I used to go through the printed versions with a highlighter and a notepad. But searching for suitable CEFs online is much easier.
One site that I always visit when re-evaluating the list of CEFs that I track and trade is run by the Closed-End Fund Association (cefa.com). Under the Learn tab, you’ll find an overview of CEF basics, which is a short read but well worth perusing. Down the left-hand side of the page you’ll find Managed Distributions, which is a unique tool comparing different types of CEF payouts, allowing you to determine whether a fund is making promised payouts from income or from return of capital. Most tables show the distribution yield of a fund, which some investors may assume is from the income generated. But it actually include a return of capital, which means the fund is giving investors their own money back.
The H&Q Life Sciences Investors (ticker: HQL), for instance, shows a yield of 6.68%, but its income-only yield is now zero. The NAV of the fund, which invests in health-care, agriculture, and environmental-management companies, has been rising at a 33%-35% clip over the past year, so it can afford its 30 cents-a-share quarterly payout to investors from capital. If the NAV isn’t growing, that may not be such a great idea. There are many other good tools on cefa.com.
Another site I like is CEF Connect (CEFconnect.com), which bills itself as “the authority on closed-end funds.” Its screener lets you search for tax-free income by state, among other criteria. It can also sort by discount, premium, yield, and return. CEF Connect provides a link to a fund’s Website, which usually provides even more detail. It also lists fund expenses. A closed-end fund has little incentive to minimize expenses, since it’s not looking to market more shares, like a regular mutual fund. A high expense ratio may account for a closed-end fund’s discount, in which case it’s no bargain.
You can use the site without registering, but there are more tools for registered users, including fund alerts and a portfolio tracker. There is no fee for registering. The site is sponsored by Nuveen Closed-End Funds, but the sponsorship is not terribly intrusive.
Published in Barron’s, June 3, 2013.
]]>Founded in 2011, Quantopian has created an online community for those who want to write and test trading algorithms, and develop their skills further by sharing ideas, code, and data with others. The algorithms are written in a language called Python, which takes some time to learn, though you don’t have to start from scratch. You can look at algorithms written by other members who make them public in the site’s community area. By clicking on the “Clone Algorithm” button, you can create a copy to play with and test. The sample that’s available to everyone has been extensively commented on, so you can see how the functions work.
Paper trading lets you run an algorithm on live data (delayed 15 minutes) using pretend money. It generates updates every minute, and you can monitor the returns and risk metrics live.
The current data available on the site, which is free for developing and testing algorithms, cover just U.S. stocks, but the firm plans to add other markets. Quantopian has several levels of security built in, and assures its members that they own their algorithms. As the company says on the site: “Ideas are some of the most valuable assets anyone has. We take this responsibility to our members extremely seriously.”
Perusing the posts in the community section, you’re bound to be impressed about how open Quantopian’s management is about the technology they’re building, including their concerns about data costs. They also freely discuss member suggestions and the likelihood of their implementation. It’s a good site to check out if you’re interested in writing your own algorithms, and don’t want to part with a wad of cash while doing so.
The ability to write trading algorithms has been a big part of online broker TradeStation’s platform since its launch. This is a sophisticated offering meant for serious traders and involves a serious financial investment to take full advantage of the tools. Quantopian gives you a look at the world of algorithmic trading without charge (for now), though its view of the world is limited to U.S. stocks (for now).
There are numerous subscription-based newsletters and analysis sites that develop algorithms. Customers can see the trade triggers and even get the trade done automatically in some cases. For instance, Collective2, which lists over 21,000 trading systems, lets customers of a number of online brokers, including tradeMonster, Interactive Brokers, and TradeStation, subscribe to a trading system that will automatically execute orders on your behalf. The systems usually have free trials for 7 to 14 days, then a fee of $50-400 per month kicks in. Quite a few systems charge no fee unless profits are generated. You can find Collective2 on a Website (collective2.com) or through an online broker partner.
Collective2 developers have generated systems for stocks, options, futures, and foreign exchange, which you can search to find one that fits your specifications, such as length of time a position is held and number of trades per month. When a system creator trades using his or her own program, a special badge is displayed that includes statistics about the average amount of money at risk. That’s the kind of information that could make a potential subscriber more comfortable about the system.
THERE ARE MANY TRIBUTES to Alan Abelson in this week’s Barron’s. My interactions with him were probably similar to those of many subscribers—opening my copy to his Up and Down Wall Street column, and reading his brilliant prose. Since I’m on the West Coast, my face-to-face meetings with him were rare, but always entertaining. The first time I met him, he said, “I sure enjoy your column, but I have no idea what you’re talking about.” He admitted to absolutely no personal interest in using an online broker, but added that he appreciated our annual review that screens them for individual investors.
I will miss his observations, his wit, and the way he could link seemingly disparate topics. I learned a great deal from him over my 18 years with Barron’s. May he rest in peace.
Published in Barron’s, May 20, 2013.
]]>TradingBlock Pro’s order-routing capabilities are unique: there are 11 standard routes, plus another 11 proprietary smart-routing algorithms that can help an options trader find opportunities across multiple exchanges as well as the so-called dark pools that operate outside the exchanges.
One of the routes is called TB Swipe, which is useful for traders going after large numbers of contracts in a single order. A similar routing algorithm, TB SmartSweep, routes orders only to exchanges that don’t tack on additional fees. (Most execution venues charge a small fee per contract or block of shares traded, which can add to the cost of a trade.) The TB SmartSweep algorithm will either fill the order immediately, or cancel it if there’s no quantity available at a no-charge exchange. Another routing engine, TB PIP, is designed to seek out and maximize price improvement.
TradingBlock Pro’s order routers now include the fully electronic Miami Options Exchange (MIAX), which launched in December. This new exchange’s technology center is located in Princeton, N.J., but there are training, meeting, and conference facilities in Miami. (I suppose the Princeton Options Exchange doesn’t sound as snappy.) According to TradingBlock executives, not many routing engines take advantage of this new exchange yet. Mark Patel, director of sales for Trading Block Pro, estimates that only 10% of brokers are routing orders there at this time, but he believes its technology and pricing make it a very attractive venue.
TradingBlock Pro also offers a customizable real-time scanner, Edge Finder, to its customers for $199 per month and up, depending on the number of bells and whistles you choose to attach. The new scanner’s filter operates in real-time across a wide variety of fields that include price, exchange, trading volume, open interest, and options greeks. There are over 30 different variables from which to choose, including a proprietary calculation called Edge, which calculates whether a particular contract is trading above or below the bid or offer. According to Patel, Edge tells you whether another trader is willing to give up some price advantage in order to get into or out of a particular position. “This can add up for helping professional traders find opportunities, and act on them,” says Patel.
You can also set up the scanner to find mispriced contracts, which can result in more profitable trades. Though $199 per month sounds pricey, during a demo session Patel was able to point out a roughly $9,000 trade that could generate an additional $4,000 in profits due to mispriced contracts. The scans are for options trading only, which is the core customer base that TradingBlock Pro is pursuing.
The brokerage doesn’t publish a commission schedule, as the rates are negotiated with each trader based on activity. One of the reports available to customers on the site’s statistics page shows how much the exchange fees are costing each month, which can help frequent traders manage their expenses. TradingBlock Pro customers can qualify for portfolio margining as well.
ANOTHER OPTION PLAY. tradeMonster customers with funded accounts can now access a daily Webinar called “Market Action” every day at 12:15 p.m. Central Time. Host David Russell will discuss the day’s winners and losers with Jon and Pete Najarian of optionMonster, plus a variety of regulars and guests. The aim is to give customers actionable ideas for trading stocks and options, with expert commentary and screens produced by tradeMonster’s researchLAB tool.
Customers with funded accounts will be alerted to the start of the daily Webinar after logging in. You can opt out of receiving the Webinar alerts if you so choose.
Published in Barron’s Online, 5/4/2013.
]]>Ahmed conceded to Barron’s last week that his firm exceeded the $5 million goal, but said it was about to issue a new private-placement offering memo with the larger total when the complaint was filed. The money was intended, he says, to further develop the firm’s trading platform and to buy an online broker in Australia.
Just2Trade, based in Washington, was the subject of a recent Electronic Investor column ("Broker Drops Tax Aid,” April 8) about the firm’s puzzling decision to drop tax-record-keeping software, Maxit, from its Website at the height of tax season. The FINRA complaint was filed April 10.
The order says that Success Trade essentially engaged in a Ponzi scheme, using the funds from newer investors to pay interest to those who had invested earlier. FINRA, the self-regulatory group for broker-dealers, says funds were misused to make unsecured loans to several individuals, including Ahmed’s brother, and to pay some of Ahmed’s personal expenses, including clothes and transportation. FINRA didn’t name any of the investors, other than to say they were mostly former and current NBA and NFL players. FINRA’s press release can be found at finra.org, where the 17-page complaint also is available.
Ahmed denies the money went to anything other than the business and says he refused to agree to a settlement that would admit to any wrongdoing.
Success Trade and Ahmed have agreed to the cease-and-desist order and have frozen the fundraising, “based on the belief that ongoing customer harm and depletion of investor assets are likely to continue before a formal disciplinary proceeding against Success Trade Securities and Ahmed will be completed.” Agreeing to the order is not an admission of or denial of guilt. Just2Trade and LowTrades, says Ahmed, continue to operate and aren’t directly affected by the FINRA action.
Success Trade wasn’t generating enough revenue through Just2Trade and LowTrades to meet its costs in recent years, according to the complaint. As a result, it began to borrow. Unlike other brokers, Ahmed’s firm owns the entire process it uses, from what investors see on its Website to back-office servicing. Most brokers use third parties for portions of the process. “We have been going down the path of licensing our trading application, which would be another source of revenue,” he says. FINRA, he adds, didn’t value the operation with that possibility included. Just2Trade, launched in 2007, had fewer than 30,000 accounts at the end of 2012, with approximately $400 million worth of assets. Clients were placing approximately 12,000 stock and option trades per day earlier in the year.
While raising money, representatives of Success Trade apparently used Just2Trade’s appearance in Barron’s annual broker review ("Back Online!,” March 11) for marketing, stating that Just2Trade was one of Barron’s best online brokers. The Barron’s list ranks online brokers. The top brokers receive four or five stars; Just2Trade earned three stars, and appeared on a list of least-expensive brokers. Overall it tied for 16th out of the 24 brokers. LowTrades, the other Success Trades subsidiary, didn’t participate in our survey.
The pro athletes provided most of the money from the fundraising. Many were clients of a firm in McLean, Va., called Jade Private Wealth Management, the complaint said. The firm, which operates out of a location also used by Success Trade, hasn’t been charged. Three of the people employed by Success Trade, which is based in Washington, also work for Jade. Ahmed said he was not involved in raising the debt and would not disclose the names of investors. Jade officials did not respond to e-mails.
An executive at another online investing firm says the problems at Success Trade underscore the difficulty of launching new brokerages. “I really think that the low-commission model only works for firms which have already reached scale. The costs of running a successful online brokerage—technology, regulatory restrictions, good operational staff—are growing every year and, if your margins are slim, I don’t see how you can sustain a business unless you have scale,” he says.
He estimates it costs $25-30 million to get a new broker off the ground. Motif Investing, which just entered the business last year, already has raised more than $50 million in venture capital.
Just2Trade frequently has trumpeted its low-cost approach, but it’s apparent that price alone isn’t a sustainable strategy.
Published in Barron’s Online, April 20, 2013.
]]>“We are trying to work with Maxit and our customers to resolve the problem, and I hope we can get this issue resolved,” says Ahmed. Although neither company wanted to go into specifics, it seems they disagreed over who was responsible for cleaning up some data being fed into the Maxit system. Entering inaccurate data means turning out faulty reports.
That was little consolation to Just2Trade clients, who started to alert Electronic Investor about the problem in late March, near the height of the tax-preparation season. Maxit allows customers to generate a Schedule D quickly.
After discovering that the Maxit link was missing, a reader in Alabama says he contacted a Just2Trade representative, who said the firm had “recently severed its relationship with Maxit and cannot currently offer an alternative.” When he asked why customers were not notified, especially with tax time looming, he didn’t feel he got a clear response. So he called again, this time to a supervisor. He says he received an apology but no help in entering hundreds of transactions by hand. The supervisor, added our reader, said the firm didn’t believe that the outputs were accurate enough and that third-party services were subject to change at any time.
In light of the IRS changes, which started to be implemented as of Jan. 1, 2011, having a cost-basis system like Maxit, or its rival Gainskeeper, was seen as a big benefit for clients. Some brokers have written their own cost-basis systems, relying on trading data from their clearing firms. Companies have been hailing their abilities for weeks. Vanguard, for instance, highlights its “cost-basis resource center” on its Website, alerting customers to the new IRS rules as tax day approaches.
A firm like Maxit tracks the cost basis for all transactions, including the complicated adjustments that can occur because of stock splits, mergers, or spinoffs, among many other situations like wash sales. Other brokers offering Maxit to their customers include OptionsHouse, Scottrade, and TradeKing.
The changes at Just2Trade’s Website are very recent. As part of our recent online-broker review ("Back Online!” March 11), Ahmed mentioned Maxit as a key benefit of his low-cost service. Routh of Scivantage says Maxit would be happy to have Just2Trade back as a customer.
In the meantime, however, traders like our reader in Alabama, who says he’s looking for a new broker, are on their own for Schedule Ds this year.
WANT SOME TRADING IDEAS based on technical and fundamental analysis? Vlad Karpel, one of the first employees at optionsXpress, who served as its chief technology officer until 2007, has them.
After working with hedge funds, Karpel last July started TradeSpoon (tradespoon.com), sharing the buy and sell signals that his proprietary analysis generates. “We believe that individuals at the beginning of their trading experience need some help with entry points, managing their positions, and managing risk,” he says. “We’re using our own proprietary algorithms to manage our own money, and wanted to offer the signals to subscribers.”
TradeSpoon follows about 1,000 stocks, all of which have options available, and analyzes each daily. The system generates a trade of the day and recommends a long or short entry point. The firm sends subscribers an e-mail every trading day between 6 p.m. and 8 p.m. Central time, allowing some time to reflect on the idea.
You can follow a Twitter feed (@tradespoon) or check out the Website. Subscriptions are $20 monthly after a 30-day free trial. Karpel is extending that free trial for Barron’s readers to 60 days; use the promo code “barrons” to get the additional 30 days.
Published in Barron’s, April 8, 2013.
]]>TD Ameritrade (ticker: AMTD) Senior Vice President Steve Quirk adds, “The industry is probably in the seventh or eighth inning of the acquisition game.” He says there are still some opportunities, and that the smart companies are evaluating and watching for the right strategic/financial balance.
Hedge fund Citadel’s recent announcement that it was shedding its 9.6% stake in E*Trade is a sign the market for online brokers is pretty limited, according to Richard Repetto of equity-research firm Sandler O’Neill. Citadel has been pushing E*Trade (ETFC) to sell itself and apparently gave up on its quest, he noted. E*Trade hasn’t commented on Citadel’s decision to sell.
The only relatively large firm to disappear in 2012 was Zecco, which was folded into TradeKing via a August merger.
Fewer new brokers are expected to jump in to restock the ranks. CEO Neville Golvala of ChoiceTrade says, “It is unlikely that a new market entrant can be successful in a crowded field.” Fidelity’s recently hired executive vice president of retail brokerage, Ram Subramaniam, notes, “The number of new entrants into the brokerage space has certainly slowed as it has become more difficult and expensive to introduce a new trading platform that could compete with what is currently available.”
Still, a number of intrepid newcomers have braved the environment over the last 18 months: Ditto Trade, Motif Investing, Kapitall Investing and OptionShop, all of which Barron’s has covered. These entrants occupy small niches, though, and they cater to a specific investment style or process. Tom Heffernan, vice president of marketing at TradingBlock, says, “We figure they’re just short-term plays looking to prove their model and then try to cash out if the big boys find what they’re doing has value, and choose to acquire or replicate.”
Alok Prasad, head of Merrill Edge, believes there’s room for a broker that provides integrated services, including self-directed, advisory, and banking. “We don’t expect to see a lot of new entrants in the traditional direct brokerage model, but rather the emergence of interesting new providers in line with these themes, including analytics and social collaborative consumption,” says Prasad. Not surprisingly, Merrill Edge is such a broker.
Analyst Repetto says trading volumes in the second half of 2012 were “just miserable.” The dollar volume for stocks traded on the New York Stock Exchange declined 25.5% from 2011 to 2012; the fall was 32.2% when comparing just the latter half of each year. “The numbers have modestly improved since the back half of 2012,” says Repetto. However, he isn’t anticipating a big uptick for the first quarter.
MINI-OPTIONS ARE IN PLAY with investors. Launched on March 18, these options in five names ("Apple in Small Bites,” March 4), are designed to give individuals a chance to buy options on some popular, high-priced stocks and exchange-traded funds in more-affordable batches of 10 shares, rather than 100.
According to optionMonster analytics, mini options accounted for 0.2% of total options trading on March 20 and 21, with the SPDR S&P 500 (SPY) representing nearly two-thirds of the mini volume. Apple (AAPL) comprised about a quarter, while trading in the other three symbols– SPDR Gold Trust (GLD), Google (GOOG), and Amazon (AMZN)—was insignificant. This product is not available at all brokers yet; we expect to see trading pick up as mini options are made more broadly available. From all reports, brokers are charging the same fees to trade minis as they do for standard options contracts.
Published in Barron’s, March 25, 2013.
]]>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.
]]>Under the traditional 100-share terms, near-the-money April calls for Apple, for example, are in the $15-$20 range for a contract, so a single call option could set you back about $2,000. If you were to write a covered call—buying 100 shares of Apple and selling the April 440 strike—you’d be looking at a price tag of over $42,000. Investors could wait for a stock split or two to make these pricey stocks easier to buy, but they’d have to wait a long time. So to keep the little guy involved, mini-options are coming.
The options-centric brokers are thrilled about mini-options. The initial launch of mini-options will be monthly expirations though most expect weekly versions to follow if volumes indicate enough interest.
“I think there is going to be demand from customers who have a hard time expressing their views in these higher dollar stocks currently. Obviously, there needs to be support from the professional trading community to make them really attractive,” says George Ruhana, CEO of OptionsHouse.
One issue is that the exchanges have not yet announced their fees. Though Ruhana expects the minis to be successful, he adds, “If they [the exchanges] make it prohibitively expensive for market makers to do business in the minis, there is a chance that the markets [price spreads] could be wider than those on the regular contracts. If that is the case, then the product will struggle.” Ruhana believes that professional market makers, such as his firm’s parent company, Peak6, should keep the spreads (the difference between the bid and ask price) fairly tight on the minis in order to make them attractive to retail traders.
Since the exchanges haven’t yet published their fee schedules, brokers haven’t announced their commissions either. I would be pleasantly surprised to see fees lowered for the mini-options, though I suspect that the commissions will be similar to, or the same as, on regular options. You can still use your broker’s analytical tools to figure out which strategy to trade, and trading odd lots of under 100 shares of stock usually generates the same commission as a regular 100-share lot.
Rooster Time
Another change planned for March 18 is the 4 a.m. Eastern time opening of pre-market trading on the Nasdaq. NYSE’s ARCA exchange has allowed 4 a.m. pre-market trades since 2005, but having the Nasdaq step in should, in theory, bring in more volume.
Stephen Ehrlich, CEO of Lightspeed Trading, says, “The 4 a.m. Nasdaq pre-market open won’t make a huge impact right away, but I believe that it will be bigger as time goes on. The early open gathers more order flow and is primarily a benefit for traders who take an overnight position, and allows them to exit earlier in the day at a more favorable price.” Ehrlich notes that the equity space between 9:30 a.m. and 4 p.m. has become extremely crowded, and big news is usually announced after the markets close at 4 p.m. “People willing to wake up early have found that this is the new frontier,” says Ehrlich. Or on the west coast, stay up late.
Published in Barron’s, March 4, 2013.
]]>The phrase “nondisplayed interest” is industry code for a dark pool—a fluid, private institutional stock market that trades large amounts of shares outside of the normal stock exchanges. Here anonymous participants, often hedge funds or high-frequency traders, can enter orders that, if matched by others in the pool, get executed. The price of the trade has to be at or between what’s known as the national best bid or offer. So the NYSE was creating a dark pool that would give the small investor a chance to get a better price.
Some questioned the Big Board’s motives because more than half of all stock orders are completed outside public exchanges. That doesn’t please the NYSE and may cut liquidity for small investors.
Other exchanges and electronic clearing networks complained that it could hurt the order process. In the past, established exchanges like the NYSE were prevented by the Securities and Exchange Commission from offering price improvement. The private venues offering price improvement usually used the exchanges’ publicly displayed prices as a basis for comparison. If the NYSE was offering price improvement, the relationship would change, possibly creating order problems, said critics.
As far as we can tell, the NYSE liquidity program, which doesn’t allow algorithmic or black-box trading, is a minor success and hasn’t disrupted order flow. However, that could be due to the limited number of retail brokers participating. The NYSE says that about nine million shares per day are being exchanged in the system now, up sharply from its start but still a small piece of the action.
Interactive Brokers added the NYSE retail liquidity program as soon as it came online, says Steve Sanders, executive vice president of marketing and product development. So far, Sanders says customers who have executed trades on the RLP have enjoyed price improvement and exchange rebates that have reduced their trading costs by about $0.0023 per share. In January, IB customers executed three million shares via the new exchange.
Don Montanaro, CEO of TradeKing, says that orders placed by his clients are processed through a variety of smart routers from a number of liquidity-providing partners, and that some of those routers connect to the NYSE RLP. “We do not provide our clients with the ability to direct specific orders,” Montanaro notes.
A couple of online brokerage officials say that they do not route to the NYSE at all, because they want to keep their clients from incurring added trading costs.
Shawn Herrin, a senior vice president at eOption, says his firm’s routers do not access the NYSE program. His clearing firm, Apex Clearing, “has put a number of restrictions on our ability to use non-Apex destinations,” he says. Herrin expects that situation to change later in the year.
Owing to some of these limits, Montanaro says it’s too early to tell about the RLP. But, he adds, “More liquidity and price improvement are always good for small investors. If they can grow the volume and liquidity, it should be beneficial.”
Published in Barron’s, February 18, 2013.
]]>The main liveAction scanning tool is organized into preset areas—unusual activity, volatility, fundamentals, and technical activity. The new item on the menu is “my scans,” which lets you create your own parameters. You tell the scanner whether you want to look for securities or optionable securities. The latter will return only stocks that have options available. As you add a filter to a scan, such as a price range for the underlying stock or a market sector, the running total of stocks that fit the scan is displayed on the top right of the screen.
You can preview the result of your scan in a list on the screen, or save the ticker symbols as part of a watch list. You also can bring up a trade ticket if you see something that spurs you to immediate action.
Also new for TradeMonster is a weekly educational program titled “I want to be a trader.” The series combines a Webinar with feedback on your trading and is hosted by TradeMonster’s own “professor,” Don Pratl. It’s open to customers as well as noncustomers.
TRADEKING AND ZECCO have completed their merger under the TradeKing banner. That’s all for the Zecco brand, as its most popular tools are integrated into the TradeKing platform. The Website now sports a redesigned research center, along with an alerts center that allows customers to receive notices of specific events delivered to both e-mail and a mobile device.
Zecco’s foreign-exchange operation has been rebranded as well, and now appears as TradeKing Forex. Customers can trade over 50 currency pairs, as well as gold and silver. The forex platform is a separate entity from the regular TradeKing site, though, so you will need a separate log-in. You can start with a practice account on the forex platform, and take advantage of the educational tools available as well, before putting real dough to work.
LIGHTSPEED ADDED advanced options trading to the latest, 8.0, version of its platform, allowing customers to trade multi-leg strategies—such as debit and credit spreads, straddles, strangles, and butterflies—or a custom strategy that can include equity legs. This platform is built for sophisticated frequent traders, and though it is flexible enough to allow you to define a huge variety of complex options orders, it is not warm and friendly, or immediately intuitive.
The Lightspeed platform lets you route your order to the options exchange you prefer, and reverse the strategy quickly should your feelings change about the market. You can also save your favorite strategies for faster input in the future.
Another feature recently added is the “executions” window. It allows you to view the margin requirements on all your open orders and trades, so you can more efficiently make use of margin loans. It lets you manually hedge your positions and strategies, or use an automatic-hedge feature to hedge all eligible positions for the best utilization of margin. For high-frequency traders who make use of margin, this feature could save you money, or just permit you to use margin more efficiently.
A FINAL NOTE: Those of you who wrote us regarding our coming annual review of online brokers were very concerned about the miscellaneous fees that various brokers charge. We have added queries about many of them to our survey, such as voluntary reorganization fees for corporate actions. Thanks to everyone who responded.
Published in Barron’s, February 4, 2013.
]]>Options on futures once changed hands almost exclusively in Chicago’s trading pits but have been moving to screens in recent years. An individual can now track several markets electronically rather than being confined to one physical marketplace.
“We believe that equity-options investors will be comfortable with futures options, and our bite-sized futures-options education content—both video and text—is designed to help them see how futures options can play a role in their portfolio,” Optionshop CEO Robert Fitzsimmons explains to Barron’s. The Electronic Investor will have a chance to test the new system shortly and will get back to you with her assessment. Meanwhile, you can check it out at optionshop.com.
TD AMERITRADE JUST unveiled an index designed to reflect retail-investor sentiment called the Investor Movement Index, or IMX. The firm mines data from its six million accounts to indicate how clients feel about the market, based on their actual trades and holdings. This snapshot can be compared with other indicators and monitored over time. In the past, TD Ameritrade would survey its customer base to determine bullish and bearish sentiment; now it can add the IMX to those more qualitative methods.
The index looks only at accounts with trading activity in the previous month, and weights all accounts equally, so trades placed in an account worth $10,000 have the same weight as those in an account with $1 million. Account data are considered only in the aggregate to protect client privacy.
When the index rises, that means investors are becoming more bullish; a drop indicates a bearish trend. The number measures the amount of buying versus selling among TD Ameritrade clients. Data for the prior month will be released between the 6th and the 8th business day of the month. When the index was launched on Jan. 8, values dating from January 2010 through December 2012 were released.
Each monthly report also includes commentary on the sectors that were most popular with customers, as well as the stocks most purchased and sold.
The IMX has ranged from a low of 3.4 in January 2012 to a high of 5.6 in June 2011. The December 2012 calculation puts the IMX at 4.94, showing a small increase from the November reading and reaching the highest level since August 2011. When compared with the S&P 500, the index displays a slightly following trend. Learn more at tdameritrade.com/imx.
ARE YOU INTERESTED IN checking out the credit rating of a firm before you invest–especially in fixed-income securities? You might want to install Fitch Mobile on your iPad. Though some of the content is for paid subscribers only, those who access the app for free can view credit research reports on corporations and government entities from around the world. The reports contain Fitch’s rating rationale and changes from previous ratings. Good stuff.
WE ARE RAMPING UP for our 18th annual survey of online brokers, which will run on March 11. Last year, we focused on mobile access to brokerage services, which, as predicted, exploded in 2012.
Are you using an online broker? If so, what do you like best about your current broker? What features could a different broker offer that would entice you to switch? For those of you who don’t use online brokers, what features are you waiting for? Please let us know by e-mailing electronicinvestor@yahoo.com .
Published in Barron’s January 14, 2013. Note: an error that was edited in to the original print version was changed back to my original copy here.
]]>Its newest update is an iPad app, which it rolled out in early December. Built internally, the app lets you choose the functions you’d like to see most often, and to arrange the tiles in your own configuration. Among the features is The Wall Street Journal’s video news, which can be searched by company or industry. Quite a few other mobile apps allow customers to stream video news (usually CNBC); the ability to search, though, is pretty slick.
Dan Greenshields, president of Capital One ShareBuilder, says ShareBuilder now has about 1.3 million clients with just under $10 billion in assets, and approximately 10% of all trades are placed on a mobile device. The new iPad app, he says, “reaches further out into the marketplace.” ShareBuilder also has a mobile app that runs on Kindle, and its site can be accessed via a browser on a mobile device. However, the new iPad app offers a lot more functionality.
The iPad app is free, and those who do not have ShareBuilder accounts can do limited research without logging in. The app allows you to open an account from your iPad, which is also unusual. Mobile investing is here to stay, says Greenshields: “Desktop PCs will become the phone booths of the future.”
ShareBuilder pricing varies by program. For a $12 monthly subscription fee, ShareBuilder Advantage offers credits for 12 automatic transactions ($1 each after that), which you set up by dollar amount on a continuing basis from a list of about 7,000 stocks and funds. Advantage customers also pay a $7.95 commission for each market or limit order; each options contract costs another 75 cents.A basic version waives the monthly fee but charges more per transaction.
Capital One (COF) will launch a new online banking application, Capital One 360, in February, that will link to ShareBuilder accounts.
TRADEMONSTER CUSTOMERS who borrow from the firm to trade on margin will see a significant increase in their margin-debt interest rates, effective Jan. 15, 2013. Customers with a $50,000 balance were paying a rate calculated as the fed-funds rate plus 2.5% (currently 2.67%); that goes up to fed funds plus 5.25% (or 5.42%), which would change interest paid from $111 to $225 per month.
TradeMonster CEO Dirk Mueller explains that the firm reviewed its rates and “decided to get more in line” with other brokers. It still maintains one of the industry’s lowest rates, he notes. The change came as a surprise to some customers, who alerted us.
DO YOU WANT TO monitor your credit score without a subscription fee? Check out Credit Sesame (creditsesame.com). It gives you an extensive review of your indebtedness, aggregated credit information, comparison with peers as well as credit-score monitoring. You do need to provide an e-mail address and eventually your Social Security number.
The data come from Experian (EXPN.U.K.), one of the world’s largest credit bureaus. Your home’s estimated value is displayed; the number it showed for my house was about 30% above Zillow’s (Z) estimate. You’ll get alerts when changes occur in your credit activity, plus a lot of ideas on how to bring your payments down. Credit Sesame can keep its service free by showing you offers for mortgages and credit cards. One of the mortgage-refinancing ideas it presented to me has me thinking about making a change. Good.
Published in Barron’s, December 24, 2012.
]]>Schwab’s, TD Ameritrade’s, and E*Trade’s moves appear to fall into the category of facing the reality that trading volume—both in Europe and the rest of the world—isn’t growing, especially for equities. The sovereign-debt crisis has seriously curtailed activity on the Continent.
A TD Ameritrade executive recently explained that licensing requirements in certain nations had prompted the closures. “Getting licensed and then regulated is incredibly difficult in a number of countries,” he says. Several European countries are enacting new requirements and considering new taxes as they try to raise more revenue. The added cost, in light of thin volume, made it uneconomical to continue.
OptionsXpress Europe isn’t the first piece of the firm to be jettisoned as the consolidation moves along. In May, Schwab announced it was phasing out brokersXpress, a broker-dealer that focused on registered investment advisors. An advisor Website, RIABiz, reported that brokersXpress had 35,000 accounts, most of which were expected to be folded into Schwab’s business.
WHILE RETREATING IN certain areas, Schwab is doing what most of its rivals are trying to do: seeking new customers and encouraging existing ones to trade more.
Schwab has just opened up its more sophisticated trading platform, called StreetSmart Edge, to all of its customers. Previously, only those who traded 36 or more times per year could log onto this service. Launched this past April, StreetSmart Edge is a cloud-based application, allowing customers to move easily from one computer to another and still have access to all of the necessary features and personalized tools.
StreetSmart Edge contains point-and-figure charting, CNBC video-on-demand, and a number of slick, customizable layouts. If you set up the layout that you want on your home computer, you will see the same one on your PC system at work or elsewhere.
Says Kelli Keough, a senior vice president at Schwab: “Traders want the convenience of trading from any computer, and our use of cloud technology in the brokerage space uniquely gives our clients the same trading experience, regardless of how they access it.”
FIDELITY RECENTLY UPDATED its mobile apps, allowing customization of the home screen for iPhone, iPod Touch, and Android owners. The screen is set up with nine tiles, which you can move around as desired, displaying key market data, personal watch lists, gainers/losers, and account data. Rotating the device to landscape mode allows access to interactive charting, including the ability to overlay technical indicators or perform comparisons between two stocks. In addition, you can now manage alerts from your phone, and be notified when a trade is executed.
The iPad app was also updated, and now includes Trefis Research tools, which are designed to identify the “drivers” of a company’s growth. Another new feature for the iPad, which kept me amused for quite some time, is the new Watch List Visualization, which lets you look over the historical performance of stocks on your watch list. You set the period you want to explore, and dive into the data. You can also compare price/earnings ratio, market cap, and other measures. It is definitely worth the update.
Published in Barron’s, December 3, 2012.
]]>And since covered calls are considered a “gateway strategy” for those new to options trading, since they can be used to augment an investor’s existing long positions, he’s been looking for ways to make their trading easier and more understandable. Some of the technology used in the Covered Call Roller eventually could be extended to other options strategies.
Rolling a covered-call position, which is created by buying a stock while selling a call for a date in the future, requires that you have a clear view (bullish or bearish) on a stock. The software then provides you with several choices, including the time of day the order will be placed and where in the spread you want the price set.
A customer can also choose the number of days before the existing option contract expires. These variations can help a customer make his or her trading less discernible to rival traders who can recognize patterns and profit from them.
Various alerts are built in to let investors know that the operation is under way. For now, the Covered Call Roller works for monthly and quarterly expirations, but Quirk says the firm also would like to include weekly expirations.
Weekly options trading is approaching 20% of all options transactions at parent TD Ameritrade.
Aside from the options improvements, there have been some interesting additions to thinkorswim’s graphing capabilities. When designing a chart, an investor can now set the number of ticks or designate a specific time period to be aggregated in a candlestick bar. The customization should make the charting geeks happy.
Another impressive part of the upgrade is the Product Depth Curve, which offers a view of the futures market. The display includes a graph of the market price of each contract month for any given futures product. It allows an investor to look at the overall market for, say, a Eurodollar or natural-gas contract, to see if there are any unusual disruptions or anomalies to the normal curve that might offer an opportunity.
An investor can go deeper into the analysis by adjusting the time frame or overlaying a historical curve on top of the current curve. These aren’t huge changes to the thinkorswim trading system, but they are welcome incremental improvements for the self-directed investor.
Here’s an update to an earlier column: Earlier this year, securities clearing outfit Penson Worldwide ran into financial trouble and closed down its business. It transferred the operations to a new firm, Apex Clearing, which is run by options market maker Peak6 Investments. Apex immediately changed the formula for setting deposit requirements for brokers, which caused a lot of unhappiness, particularly among smaller online specialists (see Barron’s, Electronic Investor, “Clearing Firm’s Exit Will Cost Brokers,” June 23).
Apex Clearing’s CEO Danny Rosenthal checked in with us recently to provide an update. He explained that his firm has reached an agreement under which many of the smaller correspondents, mostly regional broker-dealers, will shift their clearing to another firm, COR Clearing. That will relieve some of the pressure on the smaller firms and allow Apex to focus on the technology-based brokers that it wants to serve. COR, which has undergone its own restructuring, is the former Legent Clearing.
The planned transfers will take COR’s customer count to 200, from an estimated 75 late last year. And Rosenthal can sleep a little easier. “There were a lot of big problems when we came in, and we’re fixing them,” he notes. “We’ve got things on track, and it’s relatively peaceful right now.”
Published in Barron’s, November 12, 2012.
]]>We’ve been writing about cost-basis reporting for a while. Investors and traders blamed the difficulty of gathering the data when it was discovered they were vastly underreporting their capital gains. The government put the onus on brokers to collect the data. That became law in 2008 as part of the Emergency Economic Stabilization Act. Phase I kicked off on Jan. 1, 2011, for stocks purchased after that date. Phase II went into effect the next New Year’s Day, and extended the requirement to mutual-fund investments and dividend-reinvestment plans. Phase III, which affects options and fixed-income transactions, was supposed to start this January but has been put off for a year to try to correct previous problems and further prepare for possible new ones.
Anyone who received a 1099-B from a broker this past February saw a reformatted form, which caused some confusion since it only reported the cost basis of stocks purchased and sold during 2011.
Wash sales, which occur when a trader sells a financial instrument at a loss, then buys it back within 30 days, can be completed in the next calendar year. The goal is to cancel the tax write-off of the potential loss. They’re tricky, though, because IRS regulations define them not simply as selling a stock at a loss and buying it back within the wash sale period. To get the benefit the purchase of a stock or option doesn’t have to be exactly the same; it needs to be substantially the same.
If, for example, you sell some Citigroup (ticker: C) stock at a loss, then buy Bank of America (BAC) during the wash-sale period, your capital loss on the Citibank sale is erased. Brokers, however, are required to report wash sales only on identical instruments–it’s up to you to determine whether wash sales have occurred. This can get even more complicated if your sale and purchase took place at different brokers.
And who will define wash sales on bonds? That could be more confusing, given the complexity of that market.
A major concern among participants in the brokerage industry is that regulations were released with very little time left for their implementation. Celent’s report says, “As such, many intermediaries began testing and launching at the same time.”
The delay in implementing cost-basis reporting for options and fixed income for a year should, in theory, allow brokers to work out the kinks, but that will depend on the timing of the publication of the final regulations for these investments.
We found some helpful information about the whole issue from Robert Green, a CPA who focuses on traders. His Website (greencompany.com) includes an education center, which features blog posts and Webinars on the subject. The Celent report on cost-basis readiness is available on Scivantage’s Website. The firm makes accounting software for brokers, funds and investors.
WE’VE GOTTEN A FEW worried messages from foreign investors who claim U.S. online brokers are cutting them off from local operations. An Australian reader tells us TD Ameritrade informed him it will shut its virtual doors Down Under at the end of this year, while a Belgian investor says the firm is also shutting down in Italy and Belgium. They say the firm is asking them to take their business elsewhere. TD Ameritrade confirmed the closings and said in an e-mail it regretted the “angst and inconvenience” it caused some customers. The “decision was not made lightly,” it said, but will allow it to reallocate resources elsewhere.
Published in Barron’s, October 22, 2012.
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