Saturday, August 14, 2010

Here Come the Third-Party Apps

[Author’s Note: apparently my editor at Barron’s didn’t like my working title: “E*Trade for Geeks."]

E*Trade, TradeStation and Interactive Brokers encourage the development community to build apps that link to their trading platforms.

LAST MONTH, E*TRADE (http://www.etrade.com) announced the launch of its Open Application Programming Interface, or API. This set of technical programming instructions allows you to write your own trading application, or app, that ties into your E*Trade account. It can also tie applications and Websites from other developers to customize the appearance and functionality of your E*Trade connection.

For most of us, this “open” collection of obscure programming utensils and standards—including, for example, a programmers’ tool kit with the memorable name SDK, or files tagged with the extension .XML—will be close to meaningless. But you may already be using some kind of trading app or plug-in that customizes your connection to E*Trade, and there’s no question that, with the proliferation of gadgets and third-party Websites, more such customizing and control programs are on the way. Like other online investment outfits, E*Trade doesn’t want to restrict its customers’ interface and functionality options to its in-house offerings.

E*TRADE IS FAR FROM THE FIRST brokerage to allow third-party programmers to tie into its trading system. MB Trading actually started out as a trading platform for a variety of analytical programs, such as ESignal (http://www.esignal.com) and Ninja Trader (http://www.ninjatrader.com). TradeStation’s (http://www.tradestation.com) developer network lists approximately 100 add-ons that tap into its own trading and analysis platform.

Interactive Brokers (http://www.interactivebrokers.com) also has a list of third-party firms that utilize its trading system, such as Covestor (http://www.covestor.com). TD Ameritrade (http://www.tdameritrade.com) has had its API available for the last three years and now lists over 20 developer partners.

These brokers offer a long list of third-party applications that you can tie to your account that include technical analysis and charting, mobile trading, idea generation, and a range of automated trading programs. Most involve paying an additional monthly or annual subscription fee.

Kevin Delo, E*Trade’s vice president of brokerage product management, said that the launch of its API was a response to customer demand. “We received calls from certain high-end customers who wanted to be able to develop their own applications,” Delo says. He also mentioned that many E*Trade customers are using applications from other vendors, and they would like to execute their trades in their accounts without having to leave those applications.

THE FIRST THIRD-PARTY APPLICATION E*Trade links to is CoolTrade (http://www.cool-trade.com), an automated-trading application which you customize with your own personal-trading criteria. Once you’ve got it set up, when a particular stock hits your targets, the CoolTrade application will execute a trade for you through your E*Trade account.

CoolTrade’s CEO, Ed Barsano, says, “I’m glad they chose us as their first API partner. It presents a tremendous opportunity for growth in the number of traders using our product.” CoolTrade also executes trades on Interactive Brokers, MB Trading, TD Ameritrade and OptionsHouse (http://www.optionshouse.com).

Barsano, a retired Microsoft developer, notes that E*Trade created a very efficient and secure process to enable third-party applications to link to it, noting, “From a programmer’s perspective, they’ve really written it well. I think it will be extremely easy for other companies to connect to it.”

Delo says that several other programs, including AbleTrader and ESignal, have applications in the works that will link into the E*Trade platform.

LIGHTSPEED FINANCIAL (http://www.lightspeed.com)—which offers direct market-access trading technology, risk-management tools and brokerage services for professional retail active traders and institutional investors—launched its Black Box Software Development Kit (SDK) for algorithmic traders last month. Lightspeed’s Black Box SDK allows algorithmic trading applications that target U.S. equities to automatically execute trades on the Lightspeed platform.

Andrew Actman, chief strategy officer for Lightspeed, says, “We are continually enhancing the brokerage services and technology infrastructure offered through Lightspeed Gateway [an automated trading system linked to U.S.-based equities exchanges], making it easier, faster, and more efficient for clients to implement their trading strategies.”

J. David Lipsett, MB Trading’s president, says, “We don’t view ourselves as a proprietary platform company, even though we have built our own software-based, Web-based and mobile GUIs,” or graphical user interfaces. Lipsett says that the purpose of his firm’s SDK is to allow access to those tools in all asset classes to any customer or third party developer who wants to tap into their trading system.

“The fact that we built our own platform on these very same tools demonstrates the confidence we have in the system that we have created,” Lipsett concludes.

IF YOU’RE A PROGRAMMER, or just want to build your own trading strategy, you can write your own custom interface that links to your trading account at an appropriate brokerage. Since it’s prohibitively expensive to bypass a broker and link directly to the exchanges, writing your own interface is the ultimate in customizing your trading experience.

There are some hurdles that a developer has to get over. Every API is different, usually written in a variety of programming languages. In addition, every broker’s compliance department has slightly different interpretations of the various rules and regulations.

So once you’ve got an application–whether it’s technical analysis, automated trading, or a mobile app–you have to make sure it works properly with the broker’s system. Then you have to make the lawyers happy by ensuring the customer’s privacy, and by seeing to it that the app places trades legally.

Is this something an individual investor should consider? If you’re handy with programming tools, and have time to tinker, it could be an interesting project. If it’s good enough, you could even make some additional money by attracting subscribers. 

Published in Barron’s, August 9, 2010. 

Posted by twcarey on 08/14 at 12:37 PM
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