Saturday, March 12, 2011

New Tools to Help Manage Risk

In preparation for our 16th annual review of online brokers, to be published March 14, we have spent the past few months investigating new services and tools from 24 firms. Four brokers we are studying are new to our review process.

So, what’s new this year? For one thing, brokers are offering more tools to help investors manage their risk. Several have also introduced money-management services, taking another step toward full-service brokerage capability. Notable among them is Charles Schwab (http://www.schwab.com), which acquired Windward Investment Management (now called Windhaven Investment Management), an advisory firm that managed nearly $4 billion in three broadly diversified portfolios invested primarily in ETF, or exchange-traded-fund securities. In March Schwab customers will be given access to these portfolios, at an additional fee that has yet to be disclosed.

Schwab (ticker: SCHW) is also offering five new Pimco-managed Municipal Bond Ladder separately managed accounts, expanding its fixed-income offerings. These are designed for people seeking tax-advantaged assets and income generation, particularly retirees.

E*Trade (http://www.etrade.com) also made a move into the managed-accounts arena, launching Managed Investment Portfolios, which offers one-on-one professional portfolio management of ETFs and mutual funds, with a minimum investment of $25,000. Another service, Unified Managed Accounts, is for clients with assets of $250,000 or more. This is a professionally managed wrap account that includes stocks, mutual funds and ETFs. E*Trade’s (ETFC) fees for this are based on the amount of money under management.

MANY BROKERAGES HAVE STEPPED up their efforts to court active stock and options traders. There has been a major push to offer additional tools for options traders, including education offerings to make newbies more comfortable.

Fidelity (http://www.fidelity.com) enhanced its options trading with additional research, including expanded volatility data. The site also includes the ability to model the profit or loss potential of an option strategy before placing a trade.

At tradeMonster (http://www.trademonster.com), more than 100 scanners were rolled out in a new LiveAction tool, which enables users to scan the universe of available options based on volatility, unusual activity, and fundamental and technical data.

Many brokers are launching new customizable trading platforms that open in a browser and can run on any computer. In the past, a user had to download a huge file and install a software platform to get this capability, and few of those programs ran on non-Windows systems. The new Web-based platforms are, for the most part, much better trading tools, and can be customized to fit your trading style.

A brand new brokerage firm, gxTrader (http://www.gxtrader.com), opened its virtual doors in late February. It won’t be included in the brokerage review because it is too new, but the trading platform might interest those who like a visual analysis tool.

GxTrader’s software, Visual Trader, comes from Nirvana Systems, and is version 8.0 of that analysis tool. It has trading capabilities built in. Getting started was somewhat difficult, as the program, which runs only on Windows, is a 70-megabyte download. It calls on several Microsoft Visual Basic libraries, which must also be downloaded. Once the program is installed, you’ll have to download another huge file to access the necessary historical data. In all, the process takes about an hour.

Visual Trader is designed to show movement and changes in momentum across a sea of trading opportunities. It displays a three-dimensional map that can be rotated and flipped. Industries are represented by circular disks, and individual stocks by cylinders. The color, width and height of each cylinder is generated by price changes and trading volume. A thick, tall, green cylinder would indicate a stock that is trending upward in price on heavy volume. A skinny red cylinder would represent a stock declining in price on thin volume. Clicking on a cylinder produces a graph of the stock’s price and volume changes over time. Click on the small “T” on the graph, and a trade ticket opens.

As of now only stocks, ETFs and options can be traded online at gxTrader; you must call a broker to trade mutual funds and bonds. Commissions are a half-cent per share, with no minimum, so a trade of 500 shares will set you back $2.50. Options commissions are 85 cents per contract. You’ll pay $99 monthly for the software, though that fee is waived if you trade more than 10,000 shares per month. 

Published in Barron’s, March 7, 2011. 

Posted by twcarey on 03/12 at 01:36 AM
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