Saturday, May 14, 2011
Day Trade and Keep Your Day Job
A new online brokerage firm, DittoTrade, lets you mimic the trades of professionals—and get the same prices they do.
A new online broker is opening with an interesting twist. Aside from the usual online features, DittoTrade lets you buy and sell right alongside an experienced trader.
DittoTrade’s CEO, Joseph Fox, has prior experience operating an online brokerage firm—he was a founder of Web Street Securities, which was a top-rated broker in Barron’s annual ranking back in the late 1990s and was acquired by E*Trade (ticker: ETFC) in 2001. Fox decided during 2008’s financial meltdown that he wanted to go back into the business, mainly because he believed individual traders were getting clobbered by institutional traders using algorithms and high-frequency techniques.
His fledgling firm (http://www.dittotrade.com) opened its virtual doors in a beta test last October, but will soon be more visible, thanks to a new marketing campaign (and, no doubt, articles like this one). Fox says the idea is to let average investors, who usually have better things to do than stare at a computer screen, benefit from the skills of people who are in the market every day.
Upon logging in, you are presented with a standard-looking account balance page with streaming quotes. The “Trading Pit” is where customers can place orders on their own; like tradeMonster, when you enter a position on DittoTrade, you are encouraged to set a stop-loss and a profit target. Things start to differ, however, if you connect to a Master Trader.
THE MASTER TRADER LINK takes you to a dashboard that shows the stocks your chosen trader is monitoring. Most of the master traders attach notes to each symbol on this watch list, which often includes their thinking about a particular stock, along with an explanation of price entry and exit points. There are two ways to join into a master trader’s transactions: Full Throttle, which means you take part in every transaction entered by the master trader, or Participation Mode, which means you pick which stocks you want to trade from the master trader’s watch list.
You can also define in advance how you want to take part. You can choose from Share for Share (trade the same number of shares as your master trader), Percent for Percent (trade the same percentage of your total account as your master) or Max Loss Per Trade (set an amount you’re willing to lose should the stock price hit its stop-loss). The DittoTrade engine calculates these measures for you, and bundles your transactions together with those of the master and all of his other minions. Everyone gets the same price at the time of execution, which distinguishes DittoTrade not only from traditional online sites but from those offering other trade-mirroring technologies.
Once you’ve opened a position, you can either follow the master trader to close the position, or close it on your own. You can also detach the position from the master trader’s dashboard and hold it separately.
Some Barron’s readers may be wondering how they can become master traders. Fox says his brokerage is actively seeking more masters, and also is looking for those with international trading expertise. You can reach him at firstname.lastname@example.org . Master traders typically charge a subscription fee to their followers, and they control which DittoTrade customers are allowed to “ditto” their transactions. You can also develop a “friends and family” following. That means you aren’t publicly visible like a master trader, but your nephew or mother-in-law can trade with you.
San Diego-based Andy Lindloff of todaytrader.com is one of the existing master traders. DittoTrade clients can follow Lindloff for $99 per month for Full Throttle access, or they can sign up to be alerted when he makes a trade, for $49 per month. If you choose the alert system, you can make the trade on your own, but it won’t go through in a bundle with Lindloff’s orders.
Last year, the New York Times featured Lindloff in a story about the death of day trading, which brought him to Fox’s attention. Now Lindloff and his partner, Steve Gomez, are on board with DittoTrade. They generate approximately 30 transactions per month with their trading system, and customers can also watch Lindloff trade in real time using GoToMeeting, the screen-sharing program for conferencing.
Lindloff, a discretionary trader eschewing algorithms, and Gomez have posted a 28.5% gain over the past six months on DittoTrade, at http://www.todaytrader.com/performance/. He says he enjoys working as a DittoTrade Master Trader: “I think it’s a great idea if you find someone—maybe me, maybe your cousin—who is keeping an eye on your stocks and protecting you in the market. If you don’t have time, find somebody who is watching the market full-time.”
DittoTrade has a logo that Fox calls “the molecule,” which he would eventually like to see festooned on many financial Websites. It would let individuals just click on the molecule and start trading alongside their favorite bloggers and professional traders on DittoTrade. Each transaction is $4.95 for stocks and an additional 50 cents per contract for options. Margin fees are a relatively low 4.95%.
Though this site is still a little wet behind its virtual ears, it looks like a good idea worth further exploration and development. It would be worth considering if you’re a portfolio manager placing trades for your customers, or if you’re managing family accounts. Right now, all you can trade on the site are stocks and options—no mutual funds, penny stocks or foreign ordinaries.
FIDELITY OPENS UP ACTIVE TRADER: Last month, Fidelity (http://www.fidelity.com) announced it would allow free access for 90 days to its advanced trading platforms to new customers opening an account with $50,000 or more, or to existing clients transferring at least $50,000 into an account. This campaign is called “Go PRO,” and the details can be found at http://www.fidelity.com/goprooffer.
Historically, these are services only available to those who trade more than 120 times per year.
FREE ETFS AT FIRSTRADE: Ten exchange-traded funds (ETFs) can be traded commission-free at Firstrade (http://www.firstrade.com). Firstrade President and CEO John Liu says, “The 10 ETFs we selected for commission-free trading are designed to allow clients to quickly and easily build a strong foundation for a diversified portfolio.”
The list includes three bond funds, several blend funds, a commodity fund and a diversified emerging-markets fund. If you’re trading off the free list, commissions are $6.95 per transaction.
Published in Barron’s, May 9, 2011