I think that if some other writer is using my survey as a base document that the LEAST he could do is re-word the questions he’s stealing from me.  I do not think it’s a strange coincidence that we both ask this exact question:

“Average # STOCK Retail Trades per Day, quarter ending 12/31/2009”

His survey includes my caps, and the same time frame.  Even more damning, further down his survey contains this question, which is an exact copy of a question that I’ve been asking for a few years now:

“Is a real-time quote available before the trade is placed?  Does the quote appear when a ticker symbol is entered in the trading screen, or does the customer have to enter it elsewhere on the site?”

His survey also copies, word for word, a series of questions I ask about SIPC coverage and limits.  His survey has a lot of questions I don’t ask, mostly about mutual funds and managed accounts, but those are details that Barron’s readers have not asked me to consider in my 15 years of writing this story.  But there is just one section of his survey that has original questions—all the rest are either directly copied from mine, or only lightly edited. 

A lawyer friend tells me that there are copyright issues involved here, and I’m trying to decide what to do next.  This week I’m finishing up the 15th Annual Review of Online Brokers for Barron’s, which will be in print in the March 15 issue, so I don’t have a lot of free time. 

I’ve found many of my articles reproduced without permission here and there on the web; usually a request to the webmaster to take down the article does the trick.  But this time a source document of mine that has never been published in public is being used.  Maybe the other writer thought I wouldn’t find out about it?  I just cannot imagine a universe where someone would think this is OK. 

OK ... back to work! 

For example, users of Intuit’s 2009 TurboTax Premier, while trying to input their transactions, will not find “options” as a menu choice. Options transactions fall into the “Other” category, which means more mouse clicks are needed to get the information entered. Options are considered securities by the IRS, so gains are subject to the same kinds of treatment as gains on stock transactions. The problem most programs have with processing options transactions is dealing with their symbols, and matching up the entry to the correct exit from the trade.

As a couple of online brokers pointed out to me, the IRS does not yet require them to report options transactions. Your 1099 from your broker includes your total proceeds from sales of stocks, mutual funds, and bonds. That left it up to the individual to report options transactions. It’s difficult to measure the “tax gap” that likely resulted from not reporting gains on options transactions over the years.

That all changes in the next couple of years. Once brokers are required to report options transactions to their clients and to the IRS, I’m hoping that tax software helps traders make these calculations. Got that, publishers?

SmartStops nearly two years ago debuted a service that recommends exit strategies for stocks ("A New Way to Tell When to Fold ‘Em,” July 7, 2008). It’s just added Reentry Alerts to tell you when it might be safe to get back in.

SMARTSTOPS (http://www.smartstops.net) uses proprietary algorithms that categorize the overall market into up, down, or sideways movements in order to help calculate the best exit points for individual stocks. The service costs $9.95 per month for 10 stocks, and up to $99.95 for 100 stocks, with a 20% discount for an annual subscription.

For an additional $5 per month for every 10 stocks covered, Reentry Alerts signal when the risk profile of the equity you’re following has returned to normal. An e-mail alert will be sent to you to let you know you should take another look at this stock, and possibly buy it back or take off any protective hedge you had put in place. The service doesn’t tell you what stocks you should trade; you have to enter the list of stocks to follow manually.

IN PUTTING TOGETHER this year’s edition of Barron’s Best Online Brokers we’ve come across a number of interesting tidbits that we can share with you before the rankings are released in mid-March.

MURIEL SIEBERT AND CO. (http://www.siebertnet.com) has introduced a program to help clients with large positions in difficult-to-locate shares earn a little loan income from them. Positions must be more than 50,000 shares or valued above $100,000, and they must be fully paid for or exceed any margin debit in the account. Clients who decide to lend these securities to Siebert’s clearing firm can receive the income based on market value and supply/demand conditions. In addition, Siebert customers can now use add-on Trusteer Rapport Desktop Security Software to protect themselves from any phishing or spoofing attacks they might receive from Websites they visit.

ZECCO (http://www.zecco.com), which has made a push to improve customer service, has boosted staffing levels by 20% and extended help operations by 18½ hours per week. Over 95% of Zecco’s reps now hold a Series 7 license, a major gain from previous years. Zecco also added live chat in early 2009; CEO Michael Raneri says it’s popular with customers and helpful in reducing response times.

MB TRADING (http://www.mbtrading.com) acquired former partner WizeTrade, a Dallas-based community for traders that has been rebranded MBT World. In addition, its next generation product offering, now called MBT Lightwave, allows traders to create a variety of strategies, back-testing and then sharing them with the community of traders and MBT customers. The firm’s entire suite of software applications received at least one major update during 2009, including an advanced options platform. MB Trading reduced commissions for options, foreign exchange and futures.

TRADESTATION (http://www.tradestation.com) just launched TradeStation Strategy Network, a searchable online marketplace of ready-to-trade strategies assembled by independent third-party developers. TradeStation clients can sort, rank and compare trading strategy products by asset class, risk level, frequency of trading, historical return percentages and other criteria. After identifying an appropriate strategy, clients can subscribe, download it to their TradeStation platform and start using it in simulated or live trading.

TRADEKING (http://www.tradeking.com) expanded its Webinar and All-Star blogger programs while expanding its Online Learning Center. The second edition of The Options Playbook, written by TradeKing’s “Options Guy” Brian Overby, is an entertaining and effective guide to options trading. The firm has also tested a new Trading Dashboard, which integrates a client’s trading activities with the site’s social-media functionality, and rolled it out to the entire client base in January 2010.

OPTIONSHOUSE (http://www.optionshouse.com) updated its research tools last year with the addition of Exchange-Traded Funds-centric research, technical analysis and back testing of strategies. In addition, the firm partnered with a third-party performance monitoring service in order to actively measure execution statistics. OptionsHouse also added a mobile application that runs on a broad range of devices, including the iPhone and BlackBerry, with real-time access to accounts and trading.

Published in Barron’s, March 1, 2010. 

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

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

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

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

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

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

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

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

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

SCOTTRADE’S FOREIGN FORAY

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

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

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

IS THAT STOCK FAIRLY PRICED?

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

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

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

Published in Barron’s 2/15/2010

According to William Blair & Co., a market maker in Schwab stock, the pricing change is targeted at a specific customer segment—retail clients with less than $1 million in household assets, bringing this segment in line with the company’s existing pricing scheme for more affluent clients and active traders.

Blair’s analysts, Mark Lane and Katherine McCauley, say that, “We view these actions as a refinement and not the start of more intense price competition. While we believe there will continue to be modest pressure on pricing over time and our models reflect this pressure, we view online equity trading commissions as largely at a point of indifference.”

However, Jason Raznick, who serves as a director at Benzinga.com and Investimonials.com, two Websites that offer stock trading ideas and financial product reviews, believes that price competition is becoming increasingly fierce between various firms. “The revenue model at these companies appears to be shifting from commissions to selling order flow to larger brokerage houses and amassing more assets,” he says.

Looking ahead, Raznick says that this trend is unlikely to abate in 2010 as firms find it necessary to lower prices in order to remain competitive. “Under such circumstances, the need to gather more and more assets and steal market share becomes more important than ever,” Raznick asserts. “Brokers that are losing this battle will likely need to pursue consolidation by selling themselves to another firm or attempting to acquire competitors in order to increase their asset base.”

Raznick notes that “bare bones” brokers such as SogoTrade (http://www.sogotrade.com) charge as little as $3 per transaction. Dave Whitmore, president of SogoTrade, sees the commission price cuts as beneficial to the industry as a whole.

Whitmore says that brokers like Schwab (SCHW), Fidelity, and E*Trade (EFTC) have had high commission structures, and points to TD Ameritrade’s price cut to $9.99 per trade a few years back as a turning point for the larger firms. He points out that SogoTrade’s fee of $3 per trade, while offering many of the same services and functionality of other brokers, should prompt consumers to step back and ask themselves what they are really paying for.

Wade Cooperman, CEO of tradeMonster (http://www.trademonster.com) says, “If it’s good for the investor—and low easy-to-understand commissions are—we welcome it.”

Stephen Ehrlich, CEO of Lightspeed Financial (http://www.lightspeed.com/) believes that today’s active and semi-active traders are sophisticated enough to know that there’s more to choosing a broker than simply which is offering the lowest commissions. “If your trading platform is subpar or educational resources have been pared back or eliminated then cheap trades suddenly don’t mean as much,” Ehrlich says.

Steve Sanders, a vice president at Interactive Brokers (http://www.interactivebrokers.com), believes that Schwab’s new fees still make no sense for active traders or institutions. IB moved to a transparent unbundled-pricing structure a number of years ago whereby the firm explicitly charges (or rebates) exchange and clearing fees, and charges an IB fee based on monthly volume. “The more you trade the less you pay under IB’s structure,” Sanders says.

He notes that IB’s pricing for 100 shares is $1 or lower, and that the average trade size these days is 200-400 shares, even for institutions, as nobody likes to expose their trading intentions. Sanders says, “200 shares still costs $8.95 at Schwab, which is OK for the occasional investor, but not for the active trader.”

Different brokers have different ideas about why investors and traders switch platforms. SogoTrade’s Whitmore says, “Value is becoming very important to active traders. In a recent survey, SogoTrade found that price was the most important reason among traders to switch to another brokerage.”

Lightspeed’s Ehrlich notes, “In the second half of 2009 alone, more than 30% of new accounts opened at Lightspeed where traders who had come from one of the traditional online brokers, this was up from the single digits for the entire year in 2008. Lightspeed attributes this uptick to its continued commitment to its trading technology, education, and client service.” Over at tradeMonster, Cooperman states, “In addition to low commissions, though, a proactive investor needs a potent mix of intuitive trading tools, embedded education and a customizable platform to succeed long term.”

The $8.95 rate puts Charles Schwab right in the middle of the pricing among the 30 or so brokers we follow regularly in The Electronic Investor. It’s not an earth-shaking price change, but it’s interesting to see one of the big players hit that level. E*Trade and Fidelity continue to have tiered pricing. To me, the big signal is that different prices for different types of customers might come to an end.

It appears to me that Schwab’s peers and competitors have interpreted their pricing change as a positive move overall, putting their fees more in line with the rest of the world rather than marking a new low. Will it spur Schwab’s customers to place more trades? Or entice customers of Schwab’s competitors to switch over? We’ll check back and find out.

Published on Barron’s Online, January 28, 2010. 

Even though the deadline for options is a little further off, figuring transaction costs there will be a particular challenge.

The new IRS rules will change the dynamics between investor and financial institution, says Cameron Routh, senior vice president of strategic products at Scivantage (http://www.scivantage.com). His company’s Maxit enterprise application provides real-time cost-basis and tax-based investment decision support to help financial advisors and individual investors minimize tax liabilities and increase after-tax performance. Several online brokers we cover have installed Maxit in their back offices, including TradeKing, Options- House and Just2Trade.com.

“Not only is the firm going to be reporting your cost basis to you, but they’ll also be reporting it to the IRS,” says Routh. “Some [investors] might blame the broker for reporting private info; firms are going to have to educate their customers.”

Every firm eventually will introduce its own solution. Scivantage, obviously, is encouraging its online brokerage customers to get an early jump by installing the technology that would let them meet the IRS requirements now. Routh believes that getting on top of cost-basis reporting will help retail investors, and improve the investment experience by offering pre-trade tax analysis, portfolio analysis, tax tools and other applications, to leverage cost-basis tracking.

Scivantage’s Maxit competes with Gainskeeper (http://www.gainskeeper.com), which is offered to investors through online brokers including Firstrade, Zecco and optionsXpress. Gainskeeper is also available directly to investors, who can import their transactions and run the necessary reports. Maxit doesn’t have a retail version for traders, but we wouldn’t be surprised to see one in the next year.

Frequent traders already have to report wash sales themselves. These transactions are triggered when one sells a holding at a loss, and purchases it (or something that is substantially the same, like a similar ETF) again within 30 days. The loss on the sale is disallowed, though you can add it to the cost basis of the new purchase. The changes in the IRS rules place a new burden on online brokers to track and report wash sales, including a detailed list showing each sale on a single line. Some active traders generate thousands of wash sales per year.

The complications of wash sales can lead to accounting nightmares if you have to make all the calculations on your own. Some online brokers report wash sales if you make the transactions on their Website, but the wash-sale rules apply even if, for example, you sell a stock at E*Trade and then buy one that is considered substantially the same at Charles Schwab.

Traders who opt to change their accounting method from cash basis to mark-to-market aren’t subject to wash-sale rules. But they open themselves up to a great deal of additional scrutiny. Mark-to-market traders are few in number and require heavy-duty tax software that can’t be found in the usual mass-market products. We recommend Armencomp’s TradeLog MTM (http://www.armencomp.com/gtttradelog/) for these hyperactive traders.

WE’VE GOTTEN A STEADY STREAM of reader e-mails responding to our recent plea for input about online brokers for our coming annual review. We’re still open to any thoughts you can offer.

If you’ve been using an online brokerage account over the past year, please drop us a line at electronicinvestor@yahoo.com . Thanks.

Published in Barron’s, January 11, 2010. 

Larsen says that the developers were very mindful of the use of real estate on customers’ screens, and added tools for those with multiple monitors. Like many other downloadable platforms, Power E*Trade Pro is made up of a montage of windows that you can arrange to your liking on your screen. With the update, you can “tear off” any window—for example, the charting application—and move it to a second monitor. Many frequent traders these days use multiple monitors to track quotes and technical charts, or to view stock data on one screen and options data on another. This capability is simpler in the new version.

Once you you start up Power E*Trade Pro, you will see the default display on the top right. Then you can add or delete indexes and set the scroll rate so that it changes at a pace that’s comfortable for you. A new feature called the Ticker shows your trades in the symbols you want to see, either from a watch list or your current portfolio (or both). The Ticker can be set up to display real-time quotes or streaming news headlines; when you click on a headline, a box opens containing the complete story.

The Options functionality has also been updated so that the new options symbols, which will be introduced in February 2010, are fully supported.

“We’re doing a lot to get our customers prepared for the new options symbology,” Larsen says.

Starting Jan. 1, the platform will include a video player showing CNBC Plus over a live feed. This feature will be free to all customers, and will include archived videos. Larsen says the firm plans to grow the video player within the platform, and that E*Trade will add educational programs to the playlist over the next year.

“As traders are taking a break throughout the day they can watch a video. We plan to add a lot of educational videos with this new player,” he says.

Larsen explains that the platform also attempts to embrace the outside world. In the past, he notes, “The question was, ‘How do we get them to come to E*Trade and stay on our site and not leave?’ The world is changing, so we’re adding the outside world to our platform.” If you find an RSS news feed that you want to follow, you can drag and drop it onto the news page in Power E*Trade Pro.

I found the changes make the platform much easier to navigate and customize. The new version is even a smaller download—14.5MB instead of the 19MB of the older version. Also, Mac users will be pleased to hear that the new version runs on their systems; many downloadable trading applications do not.

THE E*TRADE UPDATE is just one of many innovations we expect to see at online brokers’ Websites and in software downloads in the next couple of months, as Barron’s gears up for its March 2010 ranking of online offerings for retail traders and investors.

Your comments help us adjust our ratings system from year to year and are extremely helpful. Has your trading behavior changed in 2009? What tools would you like to see your broker offer? What do you like and dislike about your current online broker? What key functionality or service could a different broker offer to entice you to open another account—or switch brokers completely?

If you’ve been using an online brokerage account over the last year, please drop us a line at electronicinvestor@yahoo.com with your comments.

TRADEKING’S (http://www.tradeking.com) Chairman and CEO Don Montanaro last week issued a strong statement against a new Congressional bill, H.R. 4191, which goes by the title “Let Wall Street Pay for the Restoration of Main Street Act of 2009”.

Under the proposed bill, a new fee would add 3[frac12] cents per share to the cost of placing a trade, and Montanaro thinks it’s unlikely that the brokers will just eat the cost and lower their own profits. The bill amends the Internal Revenue Code of 1986 to impose a tax on stock, futures, options and credit-default-swap transactions, and is intended to fund job creation and deficit reduction following the recent financial crisis.

“It is understandable that American taxpayers and their representatives are angry and distrustful of our financial institutions, given the economic struggles of the past year, high unemployment rates, and the taxpayers footing the bill for the bailout,” says Montanaro. “But we believe this proposed transaction tax will end up doing more harm than good to more of our citizens than is purported by the bill’s supporters.”

OPTIONS FEES HAVE NOWHERE to go but up. U.S. options trades take place on seven major exchanges. Three of them—The Chicago Board Options Exchange (CBOE.org, CBOE.com), International Securities Exchange (http://www.ise.com) and Boston Options Exchange (http://www.bostonoptions.com)—have recently filed for fee increases that will kick in during 2010. These fee structures are quite complex, but will result in higher fees paid by brokerages to conduct trades.

Firms that have had relatively low fees for options trading will most likely have to raise their rates just to maintain some kind of profit margin. I imagine the firms that have charged higher commissions will just go ahead and absorb the increased exchange fees.

Wade Cooperman, CEO of tradeMonster (http://www.trademonster.com), says, “We are increasingly concerned the rising exchange fees will lead to retail investors seeing their cost of trading increase.”

Published in Barron’s, December 28, 2009. 

What you do on kaChing is browse its list of investment advisors and choose a few you’d like to emulate. Open an account, deposit some money, and then, in theory, sit back and watch your portfolio grow. You invest a minimum of $3,000 with each genius you choose to follow. Each genius sets a management fee, which ranges from 0.25% to 3% of assets; 1/12 of that annual rate is charged for each month you follow a particular advisor. In addition, when a trade is executed on your behalf, you pay approximately two cents per share transacted.

You can also follow a genius, or even another kaChing member who is not an investment advisor, and just get e-mail alerts when they make a trade or post research.

The account you fund is held at Interactive Brokers (http://www.interactivebrokers.com), but the funds can only be used for your kaChing activities. In this space earlier this year ("New Ways to Manage Your Portfolio,” Aug. 24), we discussed a site that uses a similar social-networking strategy: Covestor Investment Management (https://cv.im) also uses Interactive Brokers, though its customers can also trade through TD Ameritrade (http://www.tdameritrade.com).

KaChing launched in October, and we were treated to a demo of the site at the time. Your humble columnist has been struggling to figure out a way to cover this particular product ever since, mostly because the firm’s marketing efforts are, in my opinion, off-putting.

It focuses on negative talk about mutual funds, a stance shared by kaChing’s competitor, Covestor. That’s not what I consider the most compelling reason people would want to sign up. (I’m not crazy about the site’s name either, but my age bracket is not the site’s target market.)

It was on Twitter, where one of the people I follow helped me put it all together. Bob Brinker, author of The Brinker Fixed Income Advisor newsletter (brinkeradvisor.com) tweeted, “Both Covestor and kaChing are so close to a great product—but just miss it. Wonder who gets it right first. Big market for the winner.” I called Brinker and we talked over our issues with both sites.

Brinker is a potential genius on kaChing, but says he isn’t likely to participate because he doesn’t want all of his recommendations to be public. Brinker finds the idea of having Covestor or kaChing act as the custodian for his customers’ funds very appealing for legal and regulatory reasons. Yet he’d prefer they were set up so that only people paying to invest with him could see what he’s doing in real time. Brinker says, “I understand the need for the clarity, but I don’t think someone who isn’t paying me should know what I’m doing.”

He also believes that the winner in this space will tailor it to investment-newsletter writers with solid long-term results, and that the firm will also let the customer choose his or her own broker. Investors who are looking for an expert to follow should be focusing on the longer term; month-to-month gains should not be the immediate goal, he says.

Like me, Brinker is annoyed with the attacks on mutual funds—charging them with cheating customers. Sure, some extremely high-fee, mediocre-performing funds deserve to be criticized and exposed—as Barron’s often does—but not the entire business. For its part, a Covestor spokesperson says its marketing message seems to resonate with customers.

I do believe there’s a place for services like the ones provided by kaChing and Covestor. But I think they are selling themselves short by focusing their marketing efforts on denigrating mutual funds. I appreciate how kaChing spells out exactly what it is you hold in your portfolio when you choose a particular genius. It would be helpful, too, if investors had transaction costs spelled out for them before they pulled the trigger on a trade.

SO LONG TO FLAT PRICING: OptionsHouse (http://www.optionshouse.com), which has featured flat-fee pricing for stock and options trades, is changing part of its fee structure to reflect changes in the way exchanges operate. George Ruhana, CEO of Options-House, detailed the new fees for us.

Stock-trade pricing will remain the same, at $2.95 for any transaction up to 50,000 shares. But options pricing of $9.95 for any number of contracts ($14.95 for any multi-faceted trade) is going away. In its place, customers will be able to choose from one of two pricing structures.

For those who trade in relatively small lots of options contracts, one choice is $5 for up to five contracts; anything over five contracts is $1 per contract. In this tier, spreads are $10 for any number of legs (or different options symbols traded) up to 10; it’s $1 per contract for more than 10 contracts.

Those who trade large blocks will be more interested in the other pricing structure, which is $8.50 plus 15 cents per contract. Both price structures would cost $10 for a trade of 10 contracts. Spread trading is $12.50, plus 15 cents per contract.

New customers will be asked to choose a plan when they sign up for an account. These prices aren’t locked in, though; customers can switch plans every 24 hours, to go into effect the following trading day.

MORE ABOUT BONDS: The BondDesk Group (http://www.bonddeskgroup.com) has relaunched its Website, and it has a variety of articles, along with data of interest to retail investors. Click on “Individual Investor” on the left-hand side of the main page for resources about bond-investing strategies and building bond ladders. You may also find the data on yields and most-active trades helpful.

Published in Barron’s, December 14, 2009. 

I found the Fixed Income Portfolio Report extremely useful and unusual in the online brokerage world. The tool lets you see all the bonds you hold in E*Trade accounts from several different perspectives, giving you an in-depth understanding of your fixed-income holdings. “Portfolio analysis is generally excellent for equities but not so good for fixed income,” says Liat Rorer, E*Trade’s vice president of investment products. “This tool is a step toward fixing that weakness.”

Any E*Trade account that you have that contains fixed-income securities, which include bonds, notes and CDs, shows up in the portfolio report account list. You can look at each account individually, or analyze all your E*Trade accounts as a group.

THE FIRST PAGE OF the report displays a summary of your fixed-income holdings. The next page contains pie charts with credit-rating summaries and types of bonds (corporate, municipal or Treasury) that you own. The next page details the maturity and duration of your holdings, in both graphic and tabular formats, so you get an idea of when your bonds are set to expire and what their sensitivity is to changes in interest rates. Your cash-flow summary—plus detailed data showing your income, month- by-month—helps monitor what your bonds are paying. The final page is a cash-flow analysis that’s broken out into taxable and tax-free income. The report wraps up with several pages of fixed-income definitions.

The sort of detail this E*Trade product offers would be very helpful to any investor trying to rebalance a fixed-income portfolio. At most online brokers, you virtually have to oversee your holdings by yourself, so we applaud this new tool.

Rorer says that E*Trade struggled with how to make the bond-search function more investor-friendly. The search tool itself wasn’t changed—you still have to pick out the types of bonds, the maturities and the range of yields you want. But once the results of the search come up, you can generate a graphic showing all the possible purchases by maturity on the X axis and by Yield to Worst, or the lowest potential yield possible on that bond, on the Y axis.

You can highlight an area on your graph and zoom in, which is helpful when your search generates several pages of bond listings. If you click on a single point of the graph, you get the details about that particular bond. The graph function helps you avoid outliers.

The bond ladder builder is designed to narrow the range of possibilities without making an absolute recommendation on what exact bonds to buy, according to Rorer. You select the type of bonds you want, the maturities you’re looking for, and the time frame of your overall ladder. (A bond ladder comprises fixed-income securities that mature sequentially at regular intervals so that the investor can get relatively steady returns with lower risk and more liquidity than other strategies.) For instance, you could build a ladder with AA+ corporates that starts with the first security maturing in two years, the last in 10 years and the rest maturing every two years over the interim period. The results are grouped by the date the bond matures.

Within each maturity group, the top five bonds are displayed by yield. As bonds are selected for your ladder, the coupons show up in a bar graph at the bottom. You can smooth out your income streams if you’re putting this together to generate monthly income.

If you click on “Preview order,” you get an order ticket. When you’re setting up a ladder, you have to accept the price that is displayed; you can purchase each bond individually if you want to negotiate price.

E*Trade extends agency pricing to its customers, so there is no markup on the price of the bonds. There is a $1 per bond commission with a maximum levy of $250; Treasury-bond purchases are free.

FIDELITY HAS REORGANIZED and added several features to its Stock Research Center. The goal of the redesign, according to Fidelity’s Franklin Gold, is to make the center an idea-generating tool that also allows investors to take action. It’s organized along four different themes: what stocks are moving, which ones you want to search for, which ones people are talking about and what experts think about them.

Most of these subjects are addressed by third-party research providers like Alacra and FirstRain. Fidelity has packaged its research results and made all of them easy to view on a single page.

In addition to showing the most actively traded stocks, you can now see the stocks that other Fidelity customers are trading most heavily. The top four buys and sells are on the main page; you can also look at the complete list by clicking through. The list is ranked by the total number of orders placed, not shares traded. A horizontal bar gives you an idea of the buy/sell ratio of various stocks among Fidelity customers.

Other tools summarize what’s being discussed by financial reporters and bloggers all over the Internet. For instance, Alacra Street Pulse captures comments on companies by sell-side, credit and industry analysts along with influential bloggers (including Barrons.com’s Tech Trader Daily writer, Eric J. Savitz), to let you see what key opinion leaders have to say about a particular company.

FirstRain searches for items of interest to investors, and through its semantic engine, categorizes and tags them. In the Fidelity Research Center, these items are categorized under the broad topics Energy, Consumer, Money Matters, Eye on the U.S. Economy, and Technology. You can then drill down into subcategories, which change daily, depending on what’s being discussed online.

Published in Barron’s, November 30, 2009. 

“The intent is to arm our customers with better, more actionable information to analyze a position and decide whether or not to place the trade,” Shean says,

Like most of the tools on tradeMonster’s site (http://www.trademonster.com), you can get to it from anywhere in the application, including the positions screen, the quotes window, or even an order ticket, before you push the Send button. There are also links from spreadMaker and adjustTrade ("Hardly a Lazy Summer for Brokers,” Aug. 10). Once you’ve popped a tradeLAB window open, the Analyze button loads the strategy you’re considering into tradeLAB.

TradeLAB has two components, a snapshot analysis of how the trade could look at expiration, and a spectral analysis, which shows a range of possibilities from the date of the trade through to expiration.

There are tools similar to the snapshot analysis on most options-trading Websites, although tradeMonster’s version makes key events (such as ex-dividend dates and earnings dates) easier to view. You can change the purchase price or the implied volatility of the strategy to see how that affects your profit possibilities.

The spectral-analysis feature is obviously where tradeMonster has focused its proprietary work. In spectral analysis, tradeLAB lays out the characteristics of a strategy in a way that makes the possibilities much easier to understand. The initial display is a standard candlestick chart, showing pricing in the recent past. The chart then extends into the future to show a color map of the characteristics of your strategy and how it will perform in any scenario.

The spectral chart is color-coded, so that deep green is a 50%-plus gain and deep red a 50%-plus loss, with lighter shades of green and red in between. When you point your mouse cursor to a particular point, tradeLAB shows what the exact gain or loss is. The chart style can be changed. You can display the earnings dates or blow up the entire chart to see a more detailed view. You can also alter the volatility forecast, using a drop-down menu box that lets you pick from the 30-day average, 52-week high or low implied volatility, or any possible volatility you enter yourself to see how the strategy responds.

Shean says that tradeLAB hammers home the effect of volatility on a trader’s potential profits. “Being able to change the volatility forecast and immediately see how it affects the profitability potential of a position helps people take it to the next level of understanding,” Shean observes. “We think it’s a really revolutionary tool.”

The spectral chart is made up of multiple calculations for every trading day in the forecast, so there’s a lot of number-crunching going on. All the analysis performed by tradeLAB is done on your local machine, not tradeMonster’s server, which should keep the site from bogging down when trading volume is high. Once you’ve tweaked the options strategy to your specifications, hit the Create Order button in the lower right corner to generate an order ticket. (Fees are $7.50 per stock trade; options fees begin at 50 cents per contract with a $12.50 minimum.)

This very interactive and graphical tool allows a trader to stress-test a position, and assesses the potential profitability of a trade under a variety of conditions. TradeMonster officials doubt that they will make tradeLAB available for hypothetical, or paper-trading, use; you will have to fund an account to use it.

Another feature just added to the tradeMonster site is the ability to detach windows, which allows the user to separate out, say, a favorite chart or watch list, from the overall platform and run it independently. That capability can come in handy for those using multiple monitors. Shean notes that the platform behaves like a downloadable software system, but in fact is accessible through your Web browser. “Every time a customer logs in, they have the latest version and they don’t have to download any patches or reconfigure their system. It runs on any browser or any operating system, as long as it has the [Adobe] Flash plug-in,” he says.

When tradeMonster was launched a year ago, I expressed some reservations about its survival, given the stock market’s gyrations. Shean says the privately held company, a unit of optionMonster, turned a profit in early October, a milestone it didn’t expect to reach given the headwinds in late 2008 and early 2009. It looks like tradeMonster will be around for a while yet.

CAN’T WAIT FOR NEW YEAR’S: Retail investors surveyed during the last week of October by online broker TradeKing (http://www.tradeking.com) believed that an economic recovery won’t happen until next year. TradeKing conducts a quarterly survey of sentiment; this time around, 47% of the respondents described their market outlook as “neutral” or “not sure.” The firm says those are the highest readings for those sentiments since the survey began in July 2007.

U.S. unemployment claims continue to be the top trade trigger for both equities and options traders, with 41% of those surveyed saying that this is their primary concern. U.S. housing, consumer spending and interest rates tied for second, at 30%. These concerns knocked quarterly earnings from the No. 2 spot in the prior quarter, falling sharply from 36% to 27% in the most recent survey.

The two most popular sectors for long investments are energy, registering with 58% of respondents, and technology, with 47%. And what are the most prevalent short-selling sectors? Transportation and travel topped the list, followed by finance and retail.

“One thing is certain: Uncertainty dominates right now,” says Don Montanaro, chairman and CEO of TradeKing. “We see at TradeKing how investors’ bullishness comes in the form of very specific moment-in-time opportunities, but the overall sense is that the market could go either way on any given day until we see some solid trending data signaling long-term recovery.”

Published in Barron’s, November 16, 2009. 

One interesting twist to the Fidelity platform (fidelity.com/internationaltrading) is the ability to settle trades, no matter where they occur, in U.S. dollars. This eliminates the added step of having to exchange currencies prior to placing a trade. Fidelity will perform a currency exchange so long as the trade goes through in the exact amount required; if the order isn’t filled, the currency exchange won’t happen.

Trading in international markets obviously isn’t a new idea, but when a broker the size of Fidelity enables retail investors to participate online, it shows how widely accepted foreign investing is.

James C. Burton, president of Fidelity’s retail-brokerage arm, notes, “When you consider that over the last 10 years, 80% of the world’s best-performing stocks were listed outside the U.S., it is understandable why investors are increasing their focus on international investing.”

To be eligible to trade internationally, you must hold a nonretirement account and qualify for Fidelity’s gold-level commission. Gold-level customers are those who either trade at least 120 times per year and have at least $25,000 in a Fidelity account, or have $1 million or more in household assets held at Fidelity.

Fidelity just raised the suggested level of exposure to international equities to 30% from 20% of a portfolio (see Barron’s, “Fidelity Shifts Its Assets Allocation,” Oct. 12). This new weighting will be reflected across Fidelity’s online-advice and guidance tools, including asset-allocation portfolios and managed accounts, as well as the Freedom Fund product lines. (Freedom Funds are target-date mutual funds.)

If you are eligible for international trading, your first step probably would be to explore the research available at Fidelity. You can get real-time quotes when international markets are open. Most common stocks and exchange-traded funds (ETFs) are available to trade online, while other types of securities (rights, warrants, Class A or Class B stock) might not be.

FINDING A STOCK SYMBOL allows you to get a real-time quote; when you look up a symbol, you will also see the various countries where you can trade. Note that once you buy a stock on an exchange, you have to sell it there, too, even if the shares trade on several bourses. The symbol look-up also shows 10-day average volume, which should help you locate the markets where there is more action.

To trade, you have to have enough U.S. dollars on hand (displayed as cash available to buy securities) or the foreign currency needed to place the order. For instance, if you’re buying a stock that trades in the U.K., you will need to have enough pounds sterling in your account prior to placing the transaction, or enough U.S. dollars if the trade is settling in dollars. Once you’ve placed your orders, either for stocks or for foreign currency, they’ll be displayed on your “Open Orders” page; once they’ve gone through, you can see your international holdings on your “Positions” page.

International exchanges have some restrictions that may seem—pardon the pun—foreign to investors who are most familiar with U.S. exchanges. Most markets have a tick-size requirement (meaning a price has to move a certain minimum amount before the stock price will display as having changed), as well as a lot-size requirement (a minimum number of shares); these are all detailed on the Fidelity site. Fidelity has live help available 24/7, with specialists who can walk you through the complexities.

Your international returns will depend on two factors: the usual market volatility that affects every stock, plus the fluctuations in the foreign currency against the U.S. dollar. Fidelity doesn’t pay interest on foreign-currency positions.

You will also have to keep commissions in mind; each foreign market has a different rate. For example, trading an Australian stock online will cost A$32, which is roughly US$28.90. A trade in Japan is 3,000 yen, or about US$32.90. Euro trades run €19, or about US$28.10. There are added charges for placing a trade with a live broker.

If you aren’t ready for international-equity trading, Fidelity has a mutual-fund and ETF evaluator that focuses on other types of foreign-investment approaches; please see the Website noted above.

The entire site reflects the firm’s emphasis on international trading. Fidelity’s “Markets and Sectors Overview” page now displays a world map, showing changes in indexes not only in the U.S. but globally. You can customize the indexes displayed by clicking on “More U.S. & World Indexes” just beneath the map.

Overall, this appears to be a good way for a U.S.-centric investor to look further afield for opportunities. Fidelity customers can get it all done without having to open a new account, unlike E*Trade’s international-investing feature. The interface is easier to use than that of Interactive Brokers, but the cost is higher.

TRADING TECHNOLOGIES and Tulane University are holding a trading contest that will wrap up with a live competition Nov. 13-14 at the Freeman School of Business at Tulane in New Orleans.

Twenty-two teams of four from 14 universities competed Oct. 12-23 using Trading Technologies’ software and live-data feeds from Advantage Futures. Teams from Tulane, the University of Chicago, Carnegie Mellon University, the University of Texas and the University of Toronto qualified for the final round.

Trading Technologies specializes in futures-trading. X_Trader, its flagship product, offers access to U.S. and global commodities exchanges, with links to Excel-spreadsheet analytics. The students’ performance is judged on risk-adjusted rate of return. Top prizes include internships with a leading trading firm. Good luck!

Published in Barron’s, November 2, 2009. 

New York Stock Exchange members had a record $381.4 billion in margin debt in July 2007, when the stock market was still charging ahead, according to the bourse’s Nyxdata.com Factbook. The low since January 2005 occurred close to the market bottom, in February 2009, when NYSE members’ margin borrowing stood at just $173.3 billion. It had climbed to $206.7 billion by August 2009, the most recent month for which the stock exchange’s data are available. Obviously, shifts in the stock market will increase or decrease the value of this collateral.

THE RENEWED BULL MARKET has inspired an increase in margin trading, and with investor confidence on the rise, more retail traders are apparently willing to take a chance and borrow to accumulate more stock—so think virtually all of the 19 brokers in a survey we just conducted. (This is the same group we covered in our annual ranking of the best online brokerages, “Blue Chips,” March 16, 2009.)

Lightspeed’s CEO Stephen Ehrlich explains that “the perception of a stabilizing economy, along with the recent run-up in the market, has given investors some added comfort with holding larger overnight positions, which translates directly into an increased use of margin.”

Most of the brokers we surveyed haven’t changed the rate of interest they charge for margin debt in recent months, presumably because short-term rates have remained low.

But the rates charged vary from a low of just 1.63% on a $50,000 balance at Interactive Brokers (http://www.interactivebrokers.com) to a high of 8.75% on a balance of $10,000 at TD Ameritrade (http://www.tdameritrade.com). IB’s and TD Ameritrade’s margin rates haven’t changed since our last report, in February 2009.

The underlying rate that brokers arrange with banks in order to finance margin transactions, called the call rate, has stood at 2% throughout 2009. A handful of brokers mark that rate up by one to three percentage points, while most charge five percentage points or more than their call rate.

Besides IB, the firms with lower-than-average margin rates include Siebertnet (http://www.siebertnet.com), Just2Trade (http://www.just2trade.com), tradeMonster (http://www.trademonster.com), Lightspeed Trading (http://www.lightspeed.com) and OptionsHouse (http://www.optionshouse.com).

Firms with higher-than-average rates, besides TD, include Schwab, E*Trade, Fidelity, Firstrade, and Scottrade. Surprisingly, two firms that cater to frequent traders, MB Trading and TradeStation, also charge margin rates of more than 7%.

Andrew Wilkinson, director of media communications at Interactive Brokers, attributes “some of the growth in margin use by our clients to the low financing costs available at IB.” But he also allows that “some of the rise is clearly attributable to a restoration in investor confidence as risk-appetite returns.” He notes that the use of margin increased 81% between December 2008 and September 2009 among IB’s customers.

Despite her firm’s higher-than-average rates, TD Ameritrade spokesperson Kim Hillyer says more and more clients are tapping this debt to make transactions. The use of margin at TD Ameritrade increased nearly 50% from the end of March through the end of June of this year.

If you are a heavy user of margin, it makes sense to shop around for lower rates to keep your trading costs in check. It will cost you $13.58 to carry a $10,000 margin debt for a month at Interactive Brokers while the same-size debt at TD Ameritrade will run you $72.92 a month—a difference of almost $60 a month. With a $50,000 balance, the monthly bill will be $67.92 at IB and $312.50 at TD Ameritrade. That’s a difference of about $245.

Margin increases in 2009 have largely tracked the market gains on a percentage basis, notes Tom Sosnoff, TD Ameritrade’s senior vice president of trading. “The market rallies 50%, debit balances increase 50%,” Sosnoff says. Thinkorswim.com, which is now a subsidiary of TD Ameritrade, raised its margin interest rate the most of any broker between February and October, by 2.2 percentage points, to bring it up to 7.45% for balances of $50,000.

Though the use of margin is increasing pretty sharply, few brokers expect the totals to reach 2007 levels because huge stock-market losses are still a recent investor memory. As Muriel Siebert, president and CEO of Muriel Siebert & Co., told Barron’s: “Given the dramatic market volatility over the course of the last 18 months, we don’t anticipate, anytime soon, as much use of margin as there was a few years ago.”

It will take time to restore confidence to the levels seen in 2007. “The last 12 months were a great stress test for industry risk departments,” says George Ruhana, CEO of OptionsHouse. He adds, “We are going to see them try and adjust after realizing three-standard-deviation events can happen on occasion.”

William P. Cahill, president and chief operating officer at TradeStation, compares the current situation to earlier in the decade: “The rebuilding of wealth and risk-taking is similar to the post-dot-com meltdown, when the Nasdaq dropped 70%.” That means it’s going to take awhile.

(Table referenced can be viewed at http://online.barrons.com/article/SB125573858162291219.html?page=sp)

Published in Barron’s, October 19, 2009. 

Exit Plan aims to make this basic risk-management procedure easier by using understandable words and icons to replace opaque jargon such as trailing stops, or alphabet-soup descriptions like OCO (meaning “one cancels other") and OTO ("one triggers other"). To use Exit Plan, click on a position in your portfolio and you’ll see a button with a parachute on it that says, “Set exit plan.” Exit Plan can be used for options positions as well as stocks.

There are three basic steps to defining your plan: Set a time horizon, a profit target and a stop-loss.

The profit target and stop-loss are attached to an on-screen calculator so you can create a target price based on a percentage or total change, or price-per-share change. If you fill in one field, such as percentage change, all the others are calculated for you.

At this point, you can set up either an alert or an order. Click on “Create alerts” to send yourself profit/loss notices via e-mail, which should prompt you to visit your portfolio and make needed adjustments. “Create order” automatically generates an OCO order.

The conditional orders you set up with Exit Plan aren’t visible to the market until the trigger is reached, so your intentions aren’t public knowledge. If, for instance, your profit target is reached, the order capturing your profit is executed, and the stop-loss order is cancelled.

Once your exit plan is in place, it’s displayed when you click on the position in your portfolio. Exit Plan also displays in portfolio view, which is the part of tradeMonster’s Website that lets you keep tabs on your current holdings. Portfolio reports are customizable, so you can set up a column in your portfolio view that displays your profit target and stop-loss.

Exit Plan is available on tradeMonster’s paperTrade, where you use fake money to learn how the system works. One of the features we like about the tradeMonster system is that its paperTrade is identical to its live-trading platform and you can use it without having to open a funded account.

The Chicago Board Options Exchange started to offer tradeMonster’s paperTrade on its Website (cboe.com) in the first half of September as a way to let investors learn more about trading options and other securities without risking any capital.

Exit Plan is a nicely designed tool, even though it isn’t unique. Still, it is a good addition to a platform that has numerous thoughtful touches.

The price points you define in Exit Plan are based on your own thoughts about where the stock might go, and the risk you are willing to take. An alternative that we like provides more support—but only for creating stop-losses.

SmartStops.net (http://www.smartstops.net) calculates price triggers (for stocks and exchange-traded funds only; no help here with options) each day based on current market conditions, historical trends and its own internal exit methodology. SmartStops float beneath the stock’s expected daily price range.

You could take a peek at SmartStops.net’s Website when you’re entering a stock position—you can get five SmartStops per day for free—and use its suggestions for stop-loss prices.

CHECKING ON YOUR BROKER: The Financial Industry Regulatory Authority (FINRA, http://www.finra.org) lets you browse its database of brokerage firms and individual brokers. It’s full of information about a firm or individual’s history as well as disciplinary and regulatory events.

The database, called BrokerCheck, is available at http://www.finra.org/brokercheck; you can also find it on the main Finra page, but that will take some wading through (hint: click on “Investors” and then the banner for “BrokerCheck” toward the top of the page).

The reports that BrokerCheck generates can be full of legalese and capital letters, since they are compiled from forms collected through the securities industry’s registration and licensing process.

When it comes to the online brokers we regularly cover in this column, the section of the report entitled “Arbitration Award” can be very interesting. For instance, when I looked at the arbitration reports for E*Trade, there are about 250 going back to 2000, most of which appear to involve investor losses that customers blamed on the firm. Almost all of these arbitrations ended with the phrase, “Denied in full,” indicating that the arbitrator did not find E*Trade at fault.

Individual details such as names and Social Security numbers aren’t published, but you might find it of assistance to see the complaints lodged against a broker you’re considering using.

UPDATE: In “The Long and the Short of It” (Sept. 21), we discussed publicly traded online brokers’ policies on permitting customers to short the brokers’ own stock. We asked all the publicly traded online brokers that we cover: “Do you allow your customers to have a short position in your stock?” A representative of E*Trade responded that the firm didn’t permit customers to short its shares.

We received a clarification following publication. What E*Trade doesn’t allow is a short position in any shares priced at less than $3, the range in which E*Trade stock is currently trading.

If the firm’s shares again trade above $3, E*Trade’s customers will be able to short them.

And now that Ameritrade has reversed its previous policy (as we reported in the column), we can say that no online brokers prevent clients from shorting their stock—as long as it is shortable.

Published in Barron’s, October 5, 2009. 

In order to sell a stock short, the broker has to have stock that the seller can borrow. The inventory of shares that can be borrowed depends on other customers who have purchased that stock in their margin accounts. Traders and brokers must also comply with Regulation SHO (details at http://www.sec.gov/spotlight/keyregshoissues.htm), an SEC guideline designed to, among other things, eliminate “naked” short selling, which is selling the stock short without borrowing it first. But there are other ways to end up with a short position in a stock, notably through options trading.

Your fellow reader said in his e-mail that his broker, TD Ameritrade (http://www.tdameritrade.com), closed a short position on its stock that he held in his account because it’s against company policy to allow customers to short the shares (ticker: AMTD). Somehow, he had slipped through the cracks after writing naked calls against the stock in April that was exercised in May. He had a long position in another online broker’s stock, so he was happy to hold on to the short in AMTD as a hedge.

At first, he said, a TD Ameritrade staffer called and told him the firm closed the position because the stock was on its “hard to borrow” list, presumably because there weren’t a lot of shares available to trade.

Then, the reader noted, the employee conceded that it was against company policy. If you try to sell AMTD short on TD Ameritrade’s system, you will get an error message saying, “Short sell orders for AMTD are not accepted.” However, it is still possible to sell naked calls and buy puts, which generate commissions and can result in a short position down the road. The reader commented, “Come on, now…Why isn’t that precluded, given the potential for ending up short their stock?”

Kim Hillyer, senior manager, communications and public affairs, at TD Ameritrade, confirmed to Barron’s that the policy did exist and had been in place for more than 10 years.

That prompted us to check around with other publicly traded brokers to see if this was a common policy, as Hillyer suggested. And we did find one, E*Trade (ETFC), that similarly prevents its customers from shorting its stock.

However, representatives of Schwab (SCHW) (http://www.schwab.com), Interactive Brokers (IBKR) (http://www.interactivebrokers.com), SiebertNet (SIEB) (http://www.siebertnet.com) and optionsXpress (OXPS) (http://www.optionsXpress.com) say they do allow clients to short their shares.

Even Tom Sosnoff, a senior vice president of the trading group at TD Ameritrade since his firm, thinkorswim (http://www.thinkorswim.com), was acquired by TD Ameritrade earlier this year, says thinkorswim clients can short its stock.

There’s a happy ending to this tale. On Sept. 16, after I asked officials at TD Ameritrade whether my reader’s concern was well placed, the firm revised its stand. Said Hillyer via e-mail, “We have rescinded our policy on shorting TD Ameritrade stock. The [new] policy is in effect as of today. It was a long-standing policy, and your e-mail gave us an opportunity to review and make the decision to discontinue it.”

Now E*Trade is the only mainstream broker to disallow client shorting.

VERIFY YOUR TRADE FOR FREE: Have you ever wondered whether you really got the best price at the instant your trade was executed? The NASDAQ DataStore has made a free version of one of its tools, Market Replay, available to individual investors at the NASDAQ OMX DataStore (data.nasdaq.com). We took a look at version 1.1 of this tool when it was introduced in March 2008; it is currently up to version 2.4.

Market Replay can reconstruct the events around a trade to determine whether there was a missed opportunity or an unforeseen event. Brokers can send clients a Nasdaq-validated screen shot of the moment their particular trade occurred, confirming the quality of the execution, thereby alerting customers if they got the best price.

There are two versions of Market Replay available. Both are Adobe Air applications, and open in a separate window. To get going, you enter a ticker and the date and time you want to examine. Then you view a chart showing all the trades executed for that particular symbol. The National Best Bid is represented by a blue line and Best Offer by a green line.

Market Replay LITE, the free version, lets you view up to 10 queries per day, and gives you one minute of data at a time. You can view replays for trades executed over the three previous days. For $9.99 a month, you can access Market Replay PLUS, which allows unlimited queries showing three minutes of data, and five days of historical data. PLUS subscribers get additional volume data as well.

MORE MOBILE TRADING: Interactive Brokers has announced a beta version of its iTWS trading application for the iPhone. Available from the App Store on your iPhone, iTWS lets you trade stocks, options, futures, futures options, and warrants on over 80 markets internationally. For security purposes, you’ll need your IB-account unlock card handy.

The app also lets you stream data and monitor your trades and account balances. The portfolio manager doesn’t show profit and loss, but that’s a minor quibble.

Published in Barron’s, September 21, 2009. 

Choose the “Review or Build Your Fixed Income Portfolio” option to get to a drop-down filter that lets you select your time frame and risk tolerance. It then displays a list of fixed-income alternatives.

When I picked “I have a longer time frame to reach my goal,” Fidelity suggested four possibilities arrayed from lowest to highest risk: investment-grade corporate bonds, two Fidelity bond funds, and non-investment-grade corporate bonds. Each choice is accompanied by a Research/Buy button, which takes you to a longer description of the product.

From there, you can search the available inventory using Fidelity’s bond-filtering feature, which gets pre-filled depending on what type of bond or bonds you’re considering.

You can tweak the maturity date, rating, and other criteria, then let the filter run. The results are displayed in a graph that shows yield versus maturity; clicking on a point on the graph brings up the offer page for that particular bond.

All of these functions are available before logging in to fidelity.com. To place a trade or to see how buying a particular bond would affect your portfolio requires a Fidelity account.

Also outlined in the resource center are target-asset mixes for different investment strategies. These include mixes that range from conservative, balanced, and growth to more aggressive models. The center includes market research on a variety of fixed-income topics, and a link to Fidelity’s Portfolio Review tool.

Fidelity customers can use the information about the types and behaviors of different fixed-income products to begin building a bond ladder, using the appropriately named Bond Ladder Tool, available at Open Bond Market. The Open Bond Market includes a full suite of detailed information, previously supplied only to professionals, about more than 10,000 bonds on Fidelity.com. This provides information on bond availability, trading data and pricing.

The other pieces of the Fidelity fixed-income offering feature phone access to the firm’s team of fixed-income specialists, and free educational seminars at Fidelity’s U.S.-based Investor Centers. “Demystifying Bond Selection for Your Portfolio” is one such seminar. A schedule of seminars and registration information are available at http://www.fidelity.com/seminars.

Richard Carter, vice president in Fidelity’s retail-brokerage business, says, “As market volatility has settled down, and rates for Treasuries and [certificates of deposit] have continued to fall, we’ve seen our customers show an increased interest in individual bonds and bond funds for the potential higher returns and the diversification benefits these products can bring to their portfolios.” Carter says that the rapidly shifting market conditions of the past year only re-emphasize how important it is to be diversified.

In the first six months of 2009, Fidelity retail customers’ assets in corporate bonds rose by 24%, and their assets in municipal bonds increased 7%. In addition, Fidelity’s overall bond-fund assets jumped by nearly 17% in the first six months.

SO WHAT ABOUT OPTIONS? HERE’S AN intriguing site that would greatly benefit from some well-written documentation. But it’s fascinating anyway. A group of options traders who happen to love coding came up with their own online tool to test their online options-trading strategies, and now they have introduced The Options Lab (http://www.theoptionslab.com).

To use it, just create a login ID and go. You can reach the site in either Online or Offline mode. When Online, price data are filled in for you, but some strategists use it offline to play around with FX options, commodities options and interest-rate options where data are not always available or a ticker is not clearly defined.

There are several dozen predefined strategies built in, or you can make up your own. Once you enter a ticker and choose a predefined strategy, aspects such as risk parameters (greeks), initial cost and current profit and loss are calculated. You’ll also see a graph displaying the profit and loss over time. From here, you can adjust the number of days you plan to hold the position, implied volatility, or the price of the underlying stock, to see how the chart changes or how the greeks adjust.

You can include up to four legs with your options strategy; it’s easy to exclude a leg or include a stock transaction to measure the effect on your P&L. If you click on the button marked “Exp,” you can see what the position is predicted to look like at the expiration date. The “Quick Gain” button lets you see what the gain will be if the market moves your way the moment you place your order; “Quick Loss” shows your loss if the market moves against you.

The Options Lab is free for use by individuals but charges a fee of $75 to $150 per month for companies that want to allow group use. The authors say that it won’t help predict the trend of underlying items and it won’t predict the trend of volatility. It will, however, help analyze numerous useful angles on the options strategy you decide to study. You may also use the Options Lab to create your own strategy.

DO YOU FEEL LUCKY? FX Solutions (http://www.fxsolutions.com) is launching the 2009 version of its annual forex-trading competition this week. They’ll hand out more than $100,000 in awards, based on the highest percentage increase in a forex portfolio between Sept. 20 and Oct. 16. Participation requires an account funded with at least $500 in equity; any deposit made between Sept. 6 and 18 will receive a bonus of 10% (maximum $1,000 bonus on a $10,000 funding).

The top two winners will be named World Champion and Runner-Up, plus there will be another 28 winners—the top four in each of seven geographical zones.

Published in Barron’s, September 7, 2009. 

Cake Financial (http://www.cakefinancial.com), an aggregation and community Website that was launched in 2007 (Electronic Investor, Sept. 22, 2008), unveiled the new Cake Premium platform and service late last week. Explains CEO Steve Carpenter: “What we do, with very few pieces of information and by connecting retirement and brokerage accounts, is show you how you can do better, get back on track for retirement and pick a better allocation with better holdings, which we then monitor for you.”

One interesting piece of the analysis Cake Financial performs is comparing the cost of holding various mutual funds with alternatives that it suggests. The service tries to save you money on management fees when it makes a recommendation, which is a nice touch.

At a cost of $99 a year, Cake Premium reviews what you already own and what you’re trying to accomplish. To get started, you enter your age, when you want to retire and your current salary. You connect your online brokerage accounts by entering your user names and passwords, then you enter any other assets that aren’t in either your salary or connected to your accounts, such as home value, checking accounts, cash and other offline assets. Cake connects to about 60 online brokers, including all but one of the brokers we reviewed this year in our annual online ranking, thus avoiding any additional data entry on your part.

From there Cake Premium calculates three things: your asset allocation, your risk level, and what you’re spending annually on mutual-fund fees given your current holdings. The “Cake Take,” a proprietary, investor-generated stock-rating system, is displayed for each of your current holdings.

After running simulations, Cake Premium finds alternative funds and ETFs that are lower cost. Carpenter says, “We handle close to 100 investor-use cases, such as ‘properly allocated but holdings are wrong; holdings and risk levels wrong; within 10 years of retirement; more than 10 years to go,’ and many others.” Carpenter says the built-in models provide solutions for just about every possible scenario.

Cake Premium recommends—based on where you are and where you want to go—a variety of ETFs and low-cost mutual funds across six basic categories: large-cap growth, large-cap value, small- cap growth, small-cap value, international and fixed income. Carpenter notes, “We look for low-cost alternatives, index funds, ETFs and those 5%-10% of actively managed funds that do well over time and actually earn their fees.”

This system is not the way to go for sophisticated investors who trade derivatives, or for investors who are close to, or in, retirement and have the bulk of their investments in cash vehicles. It works well for mainstream investors with over $100,000 set aside for retirement, with the majority in stock funds. It’s designed for a once-a-year rebalancing of the portfolio and for long-term buy-and-hold investing. We also found during testing that it didn’t recognize closed-end funds, but that’s typical of this type of tool.

Once you’re done with all six pieces of the asset allocation pie, you get an action plan that tells you what you have to do in each of your brokerage accounts. You’re advised to print it out and place the appropriate trades; then Cake will monitor it for you on your own dashboard. The site lets you keep up to date on your overall portfolio performance, plus it keeps tabs on how much you’re saving in mutual-fund fees each month.

What I like about Cake Premium is that it ties in all of your existing online brokerage accounts, which means no additional data entry. Once you’ve executed the recommended trades that you want to place, your dashboard back at the Cake site automatically reflects those changes. It’s also interesting to see the savings in mutual fund fees, which will more than likely offset the $99 yearly fee.

COVESTOR (http://www.covestor.com), which is a community Website for self-directed investors, has entered the fray with Covestor Investor Management (http://www.CV.IM). This system creates a money-management account that you use to subscribe to a particular investing model. You must have a brokerage account with either TD Ameritrade or Interactive Brokers (http://www.interactivebrokers.com) to use this service.

The models are built by Covestor members, who share their trading strategies and techniques with one another. You go through a series of qualifying questions to determine your risk appetite, then you are shown models that would work for your style. You commit some of your portfolio to follow recommendations issued by one of the model builders. Each model author has an extensive profile, showing his or her trading frequency, number of holdings, preferred asset classes (stocks, ETFs, short sales, etc.), and returns against a variety of benchmarks.

Covestor Investor Management has just 10 model managers right now, but the firm expects more in the near future. You’ll pay each money manager 0.8% to 1.5% of the amount entrusted to his or her care in management fees, plus any commissions generated by your broker. It could get expensive following managers who recommend 30-plus trades a month, and a quick survey of the available models showed none beating the S&P 500.

Published in Barron’s, August 24, 2009.