Saturday, August 17, 2013

How to Plan Your Life

Following our two-part series on getting started as an investor ("Best Brokers for Newbies,” July 1 and “An Investment Primer,” June 17) quite a few readers had follow-up questions. A number of you asked about the planning tools available at various brokers and how useful they really are, so let’s take up that topic.

This piece originally appeared only on Barron’s Online and was posted somewhat stealthily. 

A couple of years ago, TD Ameritrade launched a life-planning resource called Life 2.0. I like the way the advice is displayed based on various life stages : Starting Out (under 30), Gaining Traction (30-55), Almost There (55-64), and Retiring Soon (65+). For the young’uns, the site recommends ways to avoid going deeply into debt, and whether to buy or rent a home. For those nearing retirement, the article, “Solutions for Retirement Setbacks” addresses problems that the loss of a job or prolonged recessions may have on meeting savings goals. An essay on caring for aging parents helps guide you through a series of questions that may help clarify your thinking on this difficult topic.

Of course, Life 2.0 relentlessly pushes you to open an account with TD Ameritrade, but that’s to be expected. What I appreciate about the site is that it doesn’t focus only on retirement, but also presents the other financial challenges that face many of us—saving for college, for example.

Merrill Edge has an intriguing feature called “Face Retirement” (faceretirement.merrilledge.com) that may at first frighten you. Using your computer’s webcam, Face Retirement takes your picture and then shows you how you’ll look in the future, and what your cost of living will be. When this tool was launched last December, Alok Prasad, the head of Merrill Edge, said, “In a Stanford University experiment, people who saw age-enhanced images of themselves were more likely to save more for retirement, compared to those who weren’t exposed to their future selves. Face Retirement is designed to minimize that gap by giving consumers a preview of their future self, encouraging them to take control of long-term financial planning.”

The photos can be powerful stuff. When you see what you could look like at age 70, you may have an urge to put aside money for cosmetic enhancement. Or you may be inspired to go through some of the planning exercises on the page, and start saving more.

E*Trade also has life stage planners, but the focus is on investing for retirement. This includes useful advice about moving your 401(k) when you change jobs. Fidelity’s Guidance and Retirement section has a well-thought-out Having a Child Checklist, prompting you to think through health coverage, life insurance, college savings, and enhancing your retirement savings.

Trading Contests: Would you like to pit your trading savvy against a bunch of strangers, and perhaps win some money? Here are a couple of contests running now.

Kapitall (kapitall.com) offers the Market Master Tournament, which runs every week. You start out with $100,000 in virtual money, and the top three gainers each week win cash prizes, which are deposited in their brokerage account. You can play the game without opening an account, just by signing up for a free membership, but the cash prizes are only awarded to those who have accounts.

The site offers a game-like view of investing, with all activity taking place on what the founders call “the playground.” Originally launched as a Web application to help site members explore their investing ideas, Kapitall added trading capabilities last year. Rather than seeing menu items and a lot of data, you see a collection of icons that represent your practice portfolio and stocks that might interest you. You organize your experience by dragging and dropping the icons, which could represent individual stocks, groups of stocks, or a portfolio.

StockViews (http://www.stockviews.com), a recently-launched social site for traders and investors, offers a $250 prize to the winner of its monthly stock picking challenge. The August contest is in progress; a new one will be started in September.

To join the contest, you must become a member of the StockViews site (which is free), then rate and review at least three stocks. Your rated stocks will then be compared to returns on the S&P500, and the best performer will win the money. Enjoy!

Published in Barron’s Online, August 13, 2013. 

Posted by twcarey on 08/17 at 11:22 AM
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Saturday, August 03, 2013

TradeKing, Gain Unite

The latest example of the consolidation among smaller online broker firms. More tools, lower prices for Gain traders.

Fort Lauderdale, Fla.–based online broker TradeKing, which snapped up rival Zecco late in 2012, last week bought Gain Securities, a subsidiary of Gain Capital Holdings . TradeKing’s CEO Don Montanaro says the takeover includes only Gain’s stocks, bonds, and options customer base, which was a small portion of the online firm’s total retail business, which focuses on foreign-exchange trading. The deal will close within 30-60 days, pending approval of the Financial Industry Regulatory Authority.

The exact details of the all-cash deal have not been announced, but Montanaro says that they affect “a few thousand customers with a few hundred million” dollars in assets. The specifics will be disclosed once the transaction has been completed and publicly held Gain (ticker: GCAP) files its quarterly reports. Gain shares rose about 20 cents, to $6.30, on the news.

TradeKing and Gain have gotten to know each other over the past year because TradeKing uses a Gain foreign-exchange application as part of its own trading platform. Gain Capital was the target of a $210 million takeover bid this past spring but fended it off by buying a competing online foreign-exchange broker. Montanaro says that Gain Capital’s CEO gave him a call to see if it was interested in this portion of the business.

Montanaro says that “TradeKing will be a great home for them. We charge less than Gain was charging, plus they’ll get a site with more tools and more education.” The new customers will also be able to use TradeKing’s mobile apps, which Gain does not offer. They will see their stock-transaction fees drop from $6.99 at Gain to $4.95 at TradeKing, which should soften the blow of making a brokerage transition. Since both firms use the same clearing firm (Apex), Montanaro says they’ll be able to keep their account numbers, as well.

Problems in online-brokerage mergers usually occur when clearing operations have to change. So if the Finra approval occurs as expected, the technology aspect of this takeover should progress without much trouble.

Montanaro says his firm is very willing to grow via acquisition, and figures there are quite a few candidates out there. “We care a lot about the client in this space, and we know we can bring them a great experience,” he says, adding, “I found that my team is really good at managing these mergers and acquisitions. We’ve shown we can execute on that and want more chances.”

Outside of the Big 5 in online brokerage— Charles Schwab (SCHW), Fidelity, E*Trade Financial (ETFC), TD Ameritrade (AMTD), and Scottrade—Montanaro expects continuing consolidation. “We’d like to be the driver of that,” he says.

OPTIONSXPRESS UNVEILED its Walk Limit order late last summer with the intention of making options spread orders easier to place while possibly saving traders money. According to the firm’s CEO, Joseph Vietri, client savings so far are running in the range of $1 million per month. (That’s for the entire firm, not each client.) There is no additional cost for a Walk Limit order, which automatically updates your order rather than relying on time-consuming manual shifts to try to get a good price.

This order was restricted when first launched, with the initial price defaulting to the midpoint between bid and ask; the price would gradually step toward National Best Bid or Offer every two seconds. In January, however, traders could set their own initial start price, and in May the ability was added to customize the time taken to step from one price to the next, ranging from two to 60 seconds.

Built on optionsXpress’ proprietary options order-routing technology, the Walk Limit functionality has been extended to all two-, three- and four-legged options strategies, and will be available for single-leg strategies starting in September. The Walk Limit technology will be extended to futures options orders, as well.

When the optionsXpress is absorbed into the Schwab platform, the Walk Limit order type will continue to be available. Vietri says, “We want you to get better fills and better outcomes, so we have happy clients who tell their friends, and bring in new clients.”

Published in Barron’s, July 29, 2013

Posted by twcarey on 08/03 at 01:53 AM
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Saturday, July 20, 2013

Check the Buzz on Apple: Stocks in Social Media

A new site tracks what stocks social media are talking about. Is the sentiment good or bad?

Ever wonder what people are saying about your stocks? Tracking social-media sentiment about companies has become a regular part of portfolio management for many traders and investors in the last couple of years. If you’re one of them, or just curious, it’s definitely worth looking at a new Website from Market Prophit.

Marketprophit.com, which is free while in beta testing, displays interpretations of conversations taking place on a variety of social media, delivering bullish and bearish signals to members. It’s an intriguing idea, particularly because the signals are generated in real time, using quantitative analytics.

Stocks that are the focus of social-media attention, primarily from Twitter for now, show up on the Top Ten and Bottom Ten lists, where they are ranked by a sentiment calculation that ranges from +1 to -1. The more positive the reading, the more bullish the sentiment.

These lists automatically update about once a minute, or you can refresh your browser to get an up-to-the-second reading.

Clicking on a ticker symbol in the list, or entering a ticker symbol in the search box at the top of the screen, generates an entire page about that particular stock showing the sentiment reading throughout the trading day as well as traditional price and volume graphs. The company page also displays the most recent posts on Twitter about that ticker symbol as well as its fundamentals. The number of tweets posted per minute is interesting, especially for much-discussed companies such as Apple (ticker: AAPL) or Google (GOOG). There’s a “word cloud” displayed for each company, which is a visual display of the nouns and verbs most often used in tweets and other posts on social media.

HEAT MAPS SHOW, by sector or by exchange, what’s hot and what’s not at any given moment, using shades of green and red. There are quite a few sites and online brokerages that use heat maps to indicate price movement and trading volume, but this one shows the stocks, by sector, that are being talked about. A recent sentiment heat map for technology stocks, for example, showed bright green for Microsoft (MSFT), meaning the talk was positive, and bright red for BlackBerry (BBRY), suggesting the opposite. The “Buzz” heat map gives an indication of the most talked-about stocks; those with the most “Buzz” are displayed in larger boxes.

You can personalize a dashboard with the stocks you’re most interested in, either by typing in the symbols, or selecting from one of the Top/Bottom Ten lists by clicking on the appropriate icon. You can also set up alerts for specific stocks, which will send you an e-mail when triggered. For instance, you might want to be notified if a stock you just bought has a sudden downturn in sentiment, which would let you know it’s time to consider setting a stop-loss order. An upturn could provide an opportunity to write a covered call against one of your current long positions.

It’s free, for now, and provides food for thought as well as some actionable signals. I’d like to see a way to generate a graph that plots the Market Prophit sentiment signals against stock prices as well as the ability to add a sector to the dashboard.

ETF DATABASE OFFERS traders and analysts numerous ways to slice and dice the universe of exchange-traded funds. I like its list of the 100 highest year-to-date ETF returns as an idea generator. Another great tool for those considering exiting high-cost mutual funds is the mutual-fund-to-ETF-converter, which suggests ETF alternatives.

A recently launched tool for the budget-minded is ETFdb’s (etfdb.com) list of the cheapest ETFs, which displays the 100 funds with the lowest expense ratios. Two Schwab-sponsored ETFs, the Schwab U.S. Broad Market ETF (SCHB) and the Schwab U.S. Large-Cap ETF (SCHX) top this list with expense ratios of just 0.04%. For contrast, the site also lists the 100 ETFs with the highest expense ratios.

On that list, the “winner” is the Teucrium Sugar fund (CANE), with a 2.32% expense ratio—which is a higher expense ratio than most actively managed mutual funds. 

Published in Barron’s, July 15, 2013. 

Posted by twcarey on 07/20 at 11:13 AM
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Saturday, July 06, 2013

Best Brokers for Newbies

Among the top places to get started on investing are Fidelity, Merrill Edge, Schwab, T.D. Ameritrade and tradeMonster.

In my last column, I outlined ways for a wannabe independent investor to assess her risk and brush up on her analytical skills. This week, I’ve created a list of online brokers that I think are best suited for newcomers who think they’re ready.

Educational tools and personal support rank high among my priorities. There are many kinds of online brokers, ranging from those who can provide hand-holding to those who encourage you to work completely on your own. You may start out with a broker that offers a fairly basic online suite of tools, and ultimately move on to one of the technological wonders.

The tools to look for once you’re on a broker’s site are those that will help you educate yourself, and those that help you plan your investments. Most brokers have retirement and goal-setting planners as well as calculators that help you figure out how much you should invest in stocks or fixed income. Poke around and see if you are comfortable with the online broker’s site layout and style of presentation. If a site is disturbing to you aesthetically, you won’t use it.

SOME BROKERS OFFER A bricks-and-mortar presence as well as a virtual one. On the “high touch” end of the spectrum, you’ll find offerings by banks as well as brokers that used to be considered full service (and high cost). If this is appealing, you might consider brokers such as Fidelity, Merrill Edge, Scottrade, Schwab, or TD Ameritrade. Transaction fees for stock trading are $7-$10—a far cry from the high fees that full-service brokers used to charge. Most charge an additional fee of $20-$45 for broker assistance.

Merrill Edge is a subsidiary of Bank of America, and its goal is to have a financial advisor in every BofA branch. Scottrade, Fidelity, and Schwab have hundreds of branches countrywide while TD Ameritrade has about 100. All have financial advisors to whom you can talk, as well as ways to set up portfolios of exchange-traded funds without much work.

Capital One last year acquired ShareBuilder, which allows you to set up automatic investments in stocks and ETFs. Instead of buying a certain number of shares, you purchase a set dollar amount, which is then invested in as many shares as you can get (including fractions of shares). This is a good way to get started, especially in an IRA, by investing some of your cash monthly or quarterly. You can also make real-time transactions at ShareBuilder. Broker-assisted trades are another $13.

TD Ameritrade’s Website is fairly easy to navigate; one consideration here is that it also has a high-end trading platform, thinkorswim, that you could grow into over time. TD Ameritrade customers can also opt to work with an advisor through its AdvisorDirect program, which includes a consultation for no fee. You can design a relationship with an advisor that varies based on the type of support you want. If you’d prefer to go it alone, there are numerous educational tools on the site.

E*Trade also has offices, but they are typically sited in larger cities. Its Website contains numerous planning tools that can help you figure out how much to put away, and where to put it. Fidelity schedules quite a few in-person educational seminars, and it also recently launched an interactive online learning center.

Another broker that I like for novices, tradeMonster, is aimed at options traders. What I like most about the site is the way it has structured the trading process through its TradeCycle. Customers are encouraged to do their homework, develop and test a strategy, and think about how they will exit the position in time.

The goal of tradeMonster’s “I Want to be a Trader” Webinar series is to help traders gain solid investing knowledge and deepen their understanding of how to trade stocks and options. I downloaded an archived Webinar (many are free and don’t require a customer account to access) called “A Constructive Approach to Covered Calls,” which I found very useful.

Once you’re ready to open an account, you’ll need to have your Social Security number and an address to enter (not just a PO box). You can set up direct transfers from your bank account, as well, by supplying the account number and the bank’s routing number, so have those handy.

Published in Barron’s, July 1, 2013. 

Posted by twcarey on 07/06 at 01:42 AM
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Saturday, June 22, 2013

An Investment Primer

What do you need to know before you start investing on your own? Here are some basics for the newcomer.

I’m frequently asked for resources for beginning investors. In my column I usually assume a certain familiarity with investing concepts and use of the Internet. But for my next two columns, I’ll walk through the basics of what you should know to get started as an independent, self-directed investor.

Your success as an investor, whether off-line or online, depends on your attitude. “Money is a singular thing. It ranks with love as man’s greatest source of joy. And with death as his greatest source of anxiety,” said economist John Kenneth Galbraith. So are you a person who looks for opportunities and ideas? Or do you engage your mental brakes out of the fear you’ll make a mistake? You should try to find a happy medium that accounts for your stage in life and is based on a realistic assessment of your finances and goals. The summertime lull in trading is a great time to do your homework.

Though you can use programs such as Intuit’s Quicken (quicken.com) or Mint (mint.com) to keep tabs on your expenses and set up a basic plan, you might want to check out Financial Fate (financialfate.com), a free program that walks you through goal-setting scenarios. This is a small download that runs on PCs, and helps you come up with annualized estimates of where you are and where you’d like to go. Another planning tool is Personal Capital (personalcapital.com), which can import data from your existing financial accounts and create a picture for you.

You’ll need to consider three buckets for your investing: Cash savings for immediate needs and emergencies, short-term investing for goals such as a down payment on a house or a vacation, and long-term investing for items such as retirement or your newborn baby’s college education. Take a hard look at how deep you are in debt, as well––your car loan, your credit-card bills, and your mortgage. Get rid of the credit-card debt as quickly as you can; it’s a rare investor who is able to generate the 18% (or more) interest that your unpaid credit-card balances rack up.

The key to investing is to plan how much you’ll put away rather than having it happen haphazardly. The younger you are, and the longer your investment time frame, the more risk you can handle in your portfolio. To assess the level of risk you’re willing to handle, check out the investment risk-tolerance quiz from, of all places, Rutgers University’s agricultural extension program (njaes.rutgers.edu/money/riskquiz/default.asp). This quiz will give you an idea of the type of risk you feel you can handle with your finances.

How much financial savvy will you need? Since you’re reading Barron’s, I’m going to assume you are at least ¬interested in the markets and in the ¬underlying pressures that influence their movements. You need to be comfortable doing some arithmetic and know the basics of how a business is run, so you can figure out the components of a company’s financial statements and how changes in the economy might ¬affect an individual firm. The ability to evaluate a graph that plots a stock’s price over time is a necessary skill. StockCharts.com has an education module called Chart School that walks you from basic charts all the way through the intricacies of technical analysis (though you don’t have to go that far).

At some point, you have to ask yourself whether you want to go it alone, or work with an advisor. I’m a dedicated self-directed investor. There was a time when I had some help, but I’m an independent sort, knowing that nobody out there is as interested in my financial future as I am. Perhaps you are more trusting or just need some help to get started; Barron’s regularly lists financial advisors who can offer lots of ideas.

But if you’re thinking of striking off across the wilderness and opening an online brokerage account, make sure you’re comfortable. I’ve spent a lot of time testing my investment ideas using virtual trading sites, such as the Virtual Stock Exchange Games at MarketWatch (marketwatch.com/game).

What are the best online brokers for the trading newcomer? I’ll tell you next time.

Posted by twcarey on 06/22 at 03:44 AM
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Saturday, June 08, 2013

Income Generators

Amid the uncertainty about rates, investors should think about closed-end funds to produce payouts. Where to research them.

With the fixed-income markets last week scrambling to adjust to the prospect—however distant—of tighter Federal Reserve policy, investors might want to think about income-generating alternatives. Some closed-end funds fit the bill.

Unlike standard mutual funds, closed-ends issue a set number of shares and trade like stocks and exchange-traded funds. CEFs, however, can and do change hands at prices above (at a premium to) or below (at a discount to) their net asset value. ETFs, in contrast, rarely stray from their NAVs, and open-end mutual funds continually issue and redeem shares at their net asset value. Most closed-end vehicles are created to generate steady cash flows for investors, which is what makes them attractive right now.

As critics point out, they do have shortcomings: CEFs can be illiquid, and it isn’t possible to write options on them. Many ETFs do have options available, which can be used to leverage a position.

CEFS ARE ACTIVELY managed, while ETFs are usually based on a broad market index or specific sector. CEF expense ratios, on average, are higher than the 1% or so that most open-ended mutual funds charge. One advantage that CEF managers have over their open-end counterparts is that they don’t have to worry about shareholder redemptions when the market goes south because there are only a finite number of shares available. That makes them more suitable for relatively illiquid asset classes, such as foreign securities and certain fixed-income strategies. However, you might want to be cautious about funds with long-term bonds at the moment.

I’ve been using a half dozen or so CEFs to generate income for two relatives who’ve handed me their portfolios. (I am not a certified financial planner, but three decades tracking financial technology has helped me develop certain skills.) My introduction to CEFs came at Barron’s. I would sort through our lists searching for those trading at a discount (because I like a bargain). The Barron’s list these days also can be found online under Market Data by clicking on the Stock and Fund Tables menu choice. You can choose the weekly Closed End Fund report, or the quarterly table. Unfortunately, these tables are not sortable—I used to go through the printed versions with a highlighter and a notepad. But searching for suitable CEFs online is much easier.

One site that I always visit when re-evaluating the list of CEFs that I track and trade is run by the Closed-End Fund Association (cefa.com). Under the Learn tab, you’ll find an overview of CEF basics, which is a short read but well worth perusing. Down the left-hand side of the page you’ll find Managed Distributions, which is a unique tool comparing different types of CEF payouts, allowing you to determine whether a fund is making promised payouts from income or from return of capital. Most tables show the distribution yield of a fund, which some investors may assume is from the income generated. But it actually include a return of capital, which means the fund is giving investors their own money back.

The H&Q Life Sciences Investors (ticker: HQL), for instance, shows a yield of 6.68%, but its income-only yield is now zero. The NAV of the fund, which invests in health-care, agriculture, and environmental-management companies, has been rising at a 33%-35% clip over the past year, so it can afford its 30 cents-a-share quarterly payout to investors from capital. If the NAV isn’t growing, that may not be such a great idea. There are many other good tools on cefa.com.

Another site I like is CEF Connect (CEFconnect.com), which bills itself as “the authority on closed-end funds.” Its screener lets you search for tax-free income by state, among other criteria. It can also sort by discount, premium, yield, and return. CEF Connect provides a link to a fund’s Website, which usually provides even more detail. It also lists fund expenses. A closed-end fund has little incentive to minimize expenses, since it’s not looking to market more shares, like a regular mutual fund. A high expense ratio may account for a closed-end fund’s discount, in which case it’s no bargain.

You can use the site without registering, but there are more tools for registered users, including fund alerts and a portfolio tracker. There is no fee for registering. The site is sponsored by Nuveen Closed-End Funds, but the sponsorship is not terribly intrusive.

Published in Barron’s, June 3, 2013. 

Posted by twcarey on 06/08 at 03:11 AM
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Saturday, May 25, 2013

Algorithms for the Masses

Quantitative, computer-based trading is speeding its way toward individual investors. Some sites where you can learn more.

Algorithmic trading is frequently portrayed as an evil tool that is used against the retail investor by quantitative analysts, also known as “quants,” who use supercomputers to derive an edge in trading. But there’s a democratic move afoot, bringing professional-grade tools to any trader with a working knowledge of technical analysis.

A relative newcomer to the online investing scene, Boston-based Quantopian last week launched paper (simulated) and live (real money) trading features at the Finovate spring conference in San Francisco. The confab is a showcase for new financial services and banking technology. Quantopian’s (quantopian.com) live alternative is only available to a pilot group, which will execute its trades through Interactive Brokers.

Founded in 2011, Quantopian has created an online community for those who want to write and test trading algorithms, and develop their skills further by sharing ideas, code, and data with others. The algorithms are written in a language called Python, which takes some time to learn, though you don’t have to start from scratch. You can look at algorithms written by other members who make them public in the site’s community area. By clicking on the “Clone Algorithm” button, you can create a copy to play with and test. The sample that’s available to everyone has been extensively commented on, so you can see how the functions work.

Paper trading lets you run an algorithm on live data (delayed 15 minutes) using pretend money. It generates updates every minute, and you can monitor the returns and risk metrics live.

The current data available on the site, which is free for developing and testing algorithms, cover just U.S. stocks, but the firm plans to add other markets. Quantopian has several levels of security built in, and assures its members that they own their algorithms. As the company says on the site: “Ideas are some of the most valuable assets anyone has. We take this responsibility to our members extremely seriously.”

Perusing the posts in the community section, you’re bound to be impressed about how open Quantopian’s management is about the technology they’re building, including their concerns about data costs. They also freely discuss member suggestions and the likelihood of their implementation. It’s a good site to check out if you’re interested in writing your own algorithms, and don’t want to part with a wad of cash while doing so.

The ability to write trading algorithms has been a big part of online broker TradeStation’s platform since its launch. This is a sophisticated offering meant for serious traders and involves a serious financial investment to take full advantage of the tools. Quantopian gives you a look at the world of algorithmic trading without charge (for now), though its view of the world is limited to U.S. stocks (for now).

There are numerous subscription-based newsletters and analysis sites that develop algorithms. Customers can see the trade triggers and even get the trade done automatically in some cases. For instance, Collective2, which lists over 21,000 trading systems, lets customers of a number of online brokers, including tradeMonster, Interactive Brokers, and TradeStation, subscribe to a trading system that will automatically execute orders on your behalf. The systems usually have free trials for 7 to 14 days, then a fee of $50-400 per month kicks in. Quite a few systems charge no fee unless profits are generated. You can find Collective2 on a Website (collective2.com) or through an online broker partner.

Collective2 developers have generated systems for stocks, options, futures, and foreign exchange, which you can search to find one that fits your specifications, such as length of time a position is held and number of trades per month. When a system creator trades using his or her own program, a special badge is displayed that includes statistics about the average amount of money at risk. That’s the kind of information that could make a potential subscriber more comfortable about the system.

THERE ARE MANY TRIBUTES to Alan Abelson in this week’s Barron’s. My interactions with him were probably similar to those of many subscribers—opening my copy to his Up and Down Wall Street column, and reading his brilliant prose. Since I’m on the West Coast, my face-to-face meetings with him were rare, but always entertaining. The first time I met him, he said, “I sure enjoy your column, but I have no idea what you’re talking about.” He admitted to absolutely no personal interest in using an online broker, but added that he appreciated our annual review that screens them for individual investors.

I will miss his observations, his wit, and the way he could link seemingly disparate topics. I learned a great deal from him over my 18 years with Barron’s. May he rest in peace.

Published in Barron’s, May 20, 2013. 

Posted by twcarey on 05/25 at 03:09 PM
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Saturday, May 11, 2013

A Boutique for Sophisticated Options Traders

An upstart brokerage recently launched some tools of interest to sophisticated options traders. TradingBlock Professional bills itself as the “ultimate boutique options and equity trading offering specifically designed for high frequency traders, proprietary trading firms, and active money managers.”

The Pro offering (tradingblockpro.com) is aimed at equity and options traders who execute 20-200 trades per month. “Our goal is to provide active traders with customizable tools so they can get an edge on the market,” says Tom Heffernan, who heads online broker TradingBlock, an affiliate run by the same team. TradingBlock also emphasizes education and tools, but for a broader group of traders.

TradingBlock Pro’s order-routing capabilities are unique: there are 11 standard routes, plus another 11 proprietary smart-routing algorithms that can help an options trader find opportunities across multiple exchanges as well as the so-called dark pools that operate outside the exchanges.

One of the routes is called TB Swipe, which is useful for traders going after large numbers of contracts in a single order. A similar routing algorithm, TB SmartSweep, routes orders only to exchanges that don’t tack on additional fees. (Most execution venues charge a small fee per contract or block of shares traded, which can add to the cost of a trade.) The TB SmartSweep algorithm will either fill the order immediately, or cancel it if there’s no quantity available at a no-charge exchange. Another routing engine, TB PIP, is designed to seek out and maximize price improvement.

TradingBlock Pro’s order routers now include the fully electronic Miami Options Exchange (MIAX), which launched in December. This new exchange’s technology center is located in Princeton, N.J., but there are training, meeting, and conference facilities in Miami. (I suppose the Princeton Options Exchange doesn’t sound as snappy.) According to TradingBlock executives, not many routing engines take advantage of this new exchange yet. Mark Patel, director of sales for Trading Block Pro, estimates that only 10% of brokers are routing orders there at this time, but he believes its technology and pricing make it a very attractive venue.

TradingBlock Pro also offers a customizable real-time scanner, Edge Finder, to its customers for $199 per month and up, depending on the number of bells and whistles you choose to attach. The new scanner’s filter operates in real-time across a wide variety of fields that include price, exchange, trading volume, open interest, and options greeks. There are over 30 different variables from which to choose, including a proprietary calculation called Edge, which calculates whether a particular contract is trading above or below the bid or offer. According to Patel, Edge tells you whether another trader is willing to give up some price advantage in order to get into or out of a particular position. “This can add up for helping professional traders find opportunities, and act on them,” says Patel.

You can also set up the scanner to find mispriced contracts, which can result in more profitable trades. Though $199 per month sounds pricey, during a demo session Patel was able to point out a roughly $9,000 trade that could generate an additional $4,000 in profits due to mispriced contracts. The scans are for options trading only, which is the core customer base that TradingBlock Pro is pursuing.

The brokerage doesn’t publish a commission schedule, as the rates are negotiated with each trader based on activity. One of the reports available to customers on the site’s statistics page shows how much the exchange fees are costing each month, which can help frequent traders manage their expenses. TradingBlock Pro customers can qualify for portfolio margining as well.

ANOTHER OPTION PLAY. tradeMonster customers with funded accounts can now access a daily Webinar called “Market Action” every day at 12:15 p.m. Central Time. Host David Russell will discuss the day’s winners and losers with Jon and Pete Najarian of optionMonster, plus a variety of regulars and guests. The aim is to give customers actionable ideas for trading stocks and options, with expert commentary and screens produced by tradeMonster’s researchLAB tool.

Customers with funded accounts will be alerted to the start of the daily Webinar after logging in. You can opt out of receiving the Webinar alerts if you so choose.

Published in Barron’s Online, 5/4/2013. 

Posted by twcarey on 05/11 at 11:12 AM
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Saturday, April 27, 2013

Success Trade Accused of Fraud

Regulator charges parent of Just2Trade with defrauding high-profile investors from the NBA and NFL.

The Financial Industry Regulatory Authority has filed a cease-and-desist order against Success Trade Securities, parent company of online broker Just2Trade, accusing the firm of defrauding 58 investors, including many professional basketball and football players.

In its statement, FINRA alleges that Success Trade Securities, CEO Fuad Ahmed, and other registered representatives at the firm sold more than $18 million in Success Trade promissory notes to these investors, even though the firm’s original filing said it aimed to raise just $5 million. Most of the notes promised to pay annual interest rates of 12.5% on a monthly basis over three years and some offered as much as 26%. That is a very generous rate of return in a near zero-rate environment.

Ahmed conceded to Barron’s last week that his firm exceeded the $5 million goal, but said it was about to issue a new private-placement offering memo with the larger total when the complaint was filed. The money was intended, he says, to further develop the firm’s trading platform and to buy an online broker in Australia.

Just2Trade, based in Washington, was the subject of a recent Electronic Investor column ("Broker Drops Tax Aid,” April 8) about the firm’s puzzling decision to drop tax-record-keeping software, Maxit, from its Website at the height of tax season. The FINRA complaint was filed April 10.

The order says that Success Trade essentially engaged in a Ponzi scheme, using the funds from newer investors to pay interest to those who had invested earlier. FINRA, the self-regulatory group for broker-dealers, says funds were misused to make unsecured loans to several individuals, including Ahmed’s brother, and to pay some of Ahmed’s personal expenses, including clothes and transportation. FINRA didn’t name any of the investors, other than to say they were mostly former and current NBA and NFL players. FINRA’s press release can be found at finra.org, where the 17-page complaint also is available.

Ahmed denies the money went to anything other than the business and says he refused to agree to a settlement that would admit to any wrongdoing.

Success Trade and Ahmed have agreed to the cease-and-desist order and have frozen the fundraising, “based on the belief that ongoing customer harm and depletion of investor assets are likely to continue before a formal disciplinary proceeding against Success Trade Securities and Ahmed will be completed.” Agreeing to the order is not an admission of or denial of guilt. Just2Trade and LowTrades, says Ahmed, continue to operate and aren’t directly affected by the FINRA action.

Success Trade wasn’t generating enough revenue through Just2Trade and LowTrades to meet its costs in recent years, according to the complaint. As a result, it began to borrow. Unlike other brokers, Ahmed’s firm owns the entire process it uses, from what investors see on its Website to back-office servicing. Most brokers use third parties for portions of the process. “We have been going down the path of licensing our trading application, which would be another source of revenue,” he says. FINRA, he adds, didn’t value the operation with that possibility included. Just2Trade, launched in 2007, had fewer than 30,000 accounts at the end of 2012, with approximately $400 million worth of assets. Clients were placing approximately 12,000 stock and option trades per day earlier in the year.

While raising money, representatives of Success Trade apparently used Just2Trade’s appearance in Barron’s annual broker review ("Back Online!,” March 11) for marketing, stating that Just2Trade was one of Barron’s best online brokers. The Barron’s list ranks online brokers. The top brokers receive four or five stars; Just2Trade earned three stars, and appeared on a list of least-expensive brokers. Overall it tied for 16th out of the 24 brokers. LowTrades, the other Success Trades subsidiary, didn’t participate in our survey.

The pro athletes provided most of the money from the fundraising. Many were clients of a firm in McLean, Va., called Jade Private Wealth Management, the complaint said. The firm, which operates out of a location also used by Success Trade, hasn’t been charged. Three of the people employed by Success Trade, which is based in Washington, also work for Jade. Ahmed said he was not involved in raising the debt and would not disclose the names of investors. Jade officials did not respond to e-mails.

An executive at another online investing firm says the problems at Success Trade underscore the difficulty of launching new brokerages. “I really think that the low-commission model only works for firms which have already reached scale. The costs of running a successful online brokerage—technology, regulatory restrictions, good operational staff—are growing every year and, if your margins are slim, I don’t see how you can sustain a business unless you have scale,” he says.

He estimates it costs $25-30 million to get a new broker off the ground. Motif Investing, which just entered the business last year, already has raised more than $50 million in venture capital.

Just2Trade frequently has trumpeted its low-cost approach, but it’s apparent that price alone isn’t a sustainable strategy.

Published in Barron’s Online, April 20, 2013. 

Posted by twcarey on 04/27 at 11:14 AM
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Saturday, April 13, 2013

Broker Nixes Tax Help

With April 15 in sight, Just2Trade decided to get rid of a key tax-accounting feature. A number of customers aren’t pleased.

Talk about terrible timing. With April 15 in sight, online broker Just2Trade dropped a key tax-accounting feature from its Website, leaving some clients scrambling to fill out forms by hand.

Not only does tax day loom, but it’s an onerous one for investors. The Internal Revenue Service has asked brokers and investors to decide how they plan to calculate the cost basis of their investments and has begun phasing in the changes. So it was a surprising time to drop Maxit, a cost-basis management system developed by a company named Scivantage. Just2Trade CEO Fuad Ahmed confirmed that his firm has eliminated Maxit, as did Cameron Routh, an executive vice president at Scivantage.

“We are trying to work with Maxit and our customers to resolve the problem, and I hope we can get this issue resolved,” says Ahmed. Although neither company wanted to go into specifics, it seems they disagreed over who was responsible for cleaning up some data being fed into the Maxit system. Entering inaccurate data means turning out faulty reports.

That was little consolation to Just2Trade clients, who started to alert Electronic Investor about the problem in late March, near the height of the tax-preparation season. Maxit allows customers to generate a Schedule D quickly.

After discovering that the Maxit link was missing, a reader in Alabama says he contacted a Just2Trade representative, who said the firm had “recently severed its relationship with Maxit and cannot currently offer an alternative.” When he asked why customers were not notified, especially with tax time looming, he didn’t feel he got a clear response. So he called again, this time to a supervisor. He says he received an apology but no help in entering hundreds of transactions by hand. The supervisor, added our reader, said the firm didn’t believe that the outputs were accurate enough and that third-party services were subject to change at any time.

In light of the IRS changes, which started to be implemented as of Jan. 1, 2011, having a cost-basis system like Maxit, or its rival Gainskeeper, was seen as a big benefit for clients. Some brokers have written their own cost-basis systems, relying on trading data from their clearing firms. Companies have been hailing their abilities for weeks. Vanguard, for instance, highlights its “cost-basis resource center” on its Website, alerting customers to the new IRS rules as tax day approaches.

A firm like Maxit tracks the cost basis for all transactions, including the complicated adjustments that can occur because of stock splits, mergers, or spinoffs, among many other situations like wash sales. Other brokers offering Maxit to their customers include OptionsHouse, Scottrade, and TradeKing.

The changes at Just2Trade’s Website are very recent. As part of our recent online-broker review ("Back Online!” March 11), Ahmed mentioned Maxit as a key benefit of his low-cost service. Routh of Scivantage says Maxit would be happy to have Just2Trade back as a customer.

In the meantime, however, traders like our reader in Alabama, who says he’s looking for a new broker, are on their own for Schedule Ds this year.

WANT SOME TRADING IDEAS based on technical and fundamental analysis? Vlad Karpel, one of the first employees at optionsXpress, who served as its chief technology officer until 2007, has them.

After working with hedge funds, Karpel last July started TradeSpoon (tradespoon.com), sharing the buy and sell signals that his proprietary analysis generates. “We believe that individuals at the beginning of their trading experience need some help with entry points, managing their positions, and managing risk,” he says. “We’re using our own proprietary algorithms to manage our own money, and wanted to offer the signals to subscribers.”

TradeSpoon follows about 1,000 stocks, all of which have options available, and analyzes each daily. The system generates a trade of the day and recommends a long or short entry point. The firm sends subscribers an e-mail every trading day between 6 p.m. and 8 p.m. Central time, allowing some time to reflect on the idea.

You can follow a Twitter feed (@tradespoon) or check out the Website. Subscriptions are $20 monthly after a 30-day free trial. Karpel is extending that free trial for Barron’s readers to 60 days; use the promo code “barrons” to get the additional 30 days.

Published in Barron’s, April 8, 2013. 

Posted by twcarey on 04/13 at 04:02 AM
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Saturday, March 30, 2013

Broker Ranks to Thin

The combination of a handful of takeovers, some closures and fewer new entrants should reduce the industry’s numbers.

Although the rally in stocks has drawn in fresh money, last year’s big slowdown in trading is likely to lead to some further thinning of the online broker herd in 2013. Some of that will come through a handful of takeovers, and others will occur via straightforward closures, according to brokerage executives and analysts.

Because of continued near-zero interest rates and cost increases in clearing fees and data from exchanges, “there will have to be consolidation this year. It may be less in the form of mergers, though, and more likely where one firm just exits the business and sells its accounts to another firm,” says George Ruhana, CEO of OptionsHouse. As the head of one big firm puts it, “there is excess system and people capacity.”

TD Ameritrade (ticker: AMTD) Senior Vice President Steve Quirk adds, “The industry is probably in the seventh or eighth inning of the acquisition game.” He says there are still some opportunities, and that the smart companies are evaluating and watching for the right strategic/financial balance.

Hedge fund Citadel’s recent announcement that it was shedding its 9.6% stake in E*Trade is a sign the market for online brokers is pretty limited, according to Richard Repetto of equity-research firm Sandler O’Neill. Citadel has been pushing E*Trade (ETFC) to sell itself and apparently gave up on its quest, he noted. E*Trade hasn’t commented on Citadel’s decision to sell.

The only relatively large firm to disappear in 2012 was Zecco, which was folded into TradeKing via a August merger.

Fewer new brokers are expected to jump in to restock the ranks. CEO Neville Golvala of ChoiceTrade says, “It is unlikely that a new market entrant can be successful in a crowded field.” Fidelity’s recently hired executive vice president of retail brokerage, Ram Subramaniam, notes, “The number of new entrants into the brokerage space has certainly slowed as it has become more difficult and expensive to introduce a new trading platform that could compete with what is currently available.”

Still, a number of intrepid newcomers have braved the environment over the last 18 months: Ditto Trade, Motif Investing, Kapitall Investing and OptionShop, all of which Barron’s has covered. These entrants occupy small niches, though, and they cater to a specific investment style or process. Tom Heffernan, vice president of marketing at TradingBlock, says, “We figure they’re just short-term plays looking to prove their model and then try to cash out if the big boys find what they’re doing has value, and choose to acquire or replicate.”

Alok Prasad, head of Merrill Edge, believes there’s room for a broker that provides integrated services, including self-directed, advisory, and banking. “We don’t expect to see a lot of new entrants in the traditional direct brokerage model, but rather the emergence of interesting new providers in line with these themes, including analytics and social collaborative consumption,” says Prasad. Not surprisingly, Merrill Edge is such a broker.

Analyst Repetto says trading volumes in the second half of 2012 were “just miserable.” The dollar volume for stocks traded on the New York Stock Exchange declined 25.5% from 2011 to 2012; the fall was 32.2% when comparing just the latter half of each year. “The numbers have modestly improved since the back half of 2012,” says Repetto. However, he isn’t anticipating a big uptick for the first quarter.

MINI-OPTIONS ARE IN PLAY with investors. Launched on March 18, these options in five names ("Apple in Small Bites,” March 4), are designed to give individuals a chance to buy options on some popular, high-priced stocks and exchange-traded funds in more-affordable batches of 10 shares, rather than 100.

According to optionMonster analytics, mini options accounted for 0.2% of total options trading on March 20 and 21, with the SPDR S&P 500 (SPY) representing nearly two-thirds of the mini volume. Apple (AAPL) comprised about a quarter, while trading in the other three symbols– SPDR Gold Trust (GLD), Google (GOOG), and Amazon (AMZN)—was insignificant. This product is not available at all brokers yet; we expect to see trading pick up as mini options are made more broadly available. From all reports, brokers are charging the same fees to trade minis as they do for standard options contracts. 

Published in Barron’s, March 25, 2013. 

Posted by twcarey on 03/30 at 04:00 AM
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Saturday, March 16, 2013

Back Online!

After being pursued for years by online brokers, investors finally have a compelling reason to succumb: The stock market is going up.

Equities’ 8% climb this year, highlighted by last week’s record Dow Jones Industrial Average close, has coaxed investors to rebalance their portfolios and bring cash off the sidelines, say online brokers. Individuals’ equity allocations reached a two-year high of 62.5% during February, while cash positions, at 16%, stayed well below their 24% historical norm, according to the American Association of Individual Investors. Retail specialist Charles Schwab reports that its client base averaged 504,700 trades a day in January, up 8% from a year ago; dollar volume surged 12% over levels seen just a month earlier.

The chance to make real money apparently is more seductive to investors than offers of free trades, sophisticated algorithms, novel screeners or the ability to buy a stock whenever the spirit moves them, be it from a desktop computer, laptop, tablet, or smartphone.

Online brokers, a number of whom told Barron’s they were enjoying record first-quarter volume to date, caution that some of the volume is just a function of rising asset values. Still, that’s far preferable to the alternative. They’ve had to do everything possible to keep investors’ and traders’ attention in recent years. Most notably, the cloud’s seemingly endless storage space and flexible programming applications were put to use to give investors a more uniform trading experience. Fidelity, Interactive Brokers, TD Ameritrade, and tradeMonster all now provide real-time data and account information, no matter what device or platform the customer uses. Prior to the recent run-up, one of the few bright spot for brokers was mobile trading, where Fidelity reports its volume rose 40% from 2011 to 2012 and Merrill Edge’s more than doubled. Schwab made data available to its customers through more devices by moving it into the cloud.

As part of our 18th annual ranking of the Best Online Brokers, we’ve had a chance to review many innovations: tradeMonster’s liveAction scanning tool, a remarkably flexible way to seek trading opportunities in real time; TradeStation’s empowerment of investors by offering the means to place a trade without losing sight of a chart; and advances in risk and margin-balance management from E*Trade, optionsXpress, and Lightspeed.

Those who return to online investing feeling a little rusty will find ample opportunity to hone their skills. Educational programs have vastly improved, whether they’re conducted in person, via live Webinars, or from archived recordings. Scottrade says it held an average of 300 seminars per week at its branch offices last year, double the number offered in 2011. Lightspeed produced an engaging series of Webinars informing traders about lesser-known platform features. And OptionsHouse targeted specific types of investors to arm them with the right strategies.

A number of brokers already use video to hold remote face-to-face meetings with clients. Fidelity has gone a step further, adding an avatar-based education program that allows customers to roam a virtual trading center and interact with trainers and other traders. Dan Greenshields, president of ShareBuilder, suggests it won’t be long before investors can get three-dimensional aid. “How about holographic help?” he asks.

In the meantime, Barron’s will try to fill the void. We researched two dozen firms who agreed to provide us with substantial access to their systems. Some, including Vanguard, did not respond to our requests to participate.

Our evaluation criteria focus on the needs of wealthy, active traders. We looked at eight categories of service, examining what can be traded online, how the tools work together across platforms, the design and capabilities of mobile platforms, educational offerings and customer service, as well as the nuts and bolts of placing and executing a trade. We closely scrutinized the various tools available for finding appropriate trades, including scanners and charts (See “How We Ranked the Brokers” at end of the story.) When examining costs, we considered stock and options commissions as well as platform or maintenance fees, margin debt, and charges for transferring an account out.

Although we award 4½ stars (out of a possible five) to just three brokers this year, we also identify the top brokers in six categories–high-frequency trading, in-person service, international investing, long-term investing, services for novices, and options trading—to help you decide where you should open (or transfer) an account. We show the brokers who were at the extremes when we calculated the monthly cost of trading for infrequent traders as well as for those who trade multiple times per day.

Table: How the Brokers Stack Up

Ranking table and cost summaries can be found on Barrons.com:  click here

Our 2012 champ, Interactive Brokers (interactivebrokers.com), takes top honors again in 2013. It offers superb trading technology, improved portfolio analysis, and enhanced educational offerings. The firm’s mobile application, Trading Assistant, alerts you to market opportunities around the world, in real time. It allows you to trade almost every asset class possible using its downloadable computer-based platform, Trader Workstation, which continues to evolve as an excellent tool for staying on top of global trading. You can also view a portfolio analysis report that you designed on your desktop from a mobile device.

An addition to the platform this year is IB Market Signals, proprietary algorithms that continuously monitor the U.S. equity and option markets to highlight possible chances to profit, or to flag unexpected behavior in existing positions. Volatility correction figures make sure that the signals are due to ticker-specific action and not just the gyrations of the overall market.

The platform supports enough bells and whistles to make a technical analyst giddy, but this year IB has focused on the fundamental researcher. The summary gives an overview of a corporation’s finances going back 20 quarters, along with eight quarters of analyst estimates. You can generate charts that overlay specific financial data across the stock price, and get an idea of how a company’s performance affects market activity.

As we’ve said before, this isn’t a broker for the casual buy-and-hold investor; IB caters to hedge funds and very frequent traders. There is a minimum monthly fee of $10, which can be disposed of with a few trades, and some data feeds are not free. If you have multiple accounts at IB, or trade frequently enough, you can keep the fees under control.

No. 2 tradeMonster also earns 4½ stars (though a lower score) on the strength of its extremely flexible Web-based and mobile applications. This broker is aimed squarely at options traders, and its Website (trademonster.com) is packed with scanning tools that help you pinpoint opportunities. The site nicely guides you through the firm’s tradeCycle, which encourages you to do your homework, evaluate a trade’s potential profitability, set an exit strategy, and stay on top of market movements.

You can trade stocks, futures options, single stock futures and commodity futures with tradeMonster, but options are the real play. The firm’s education section includes numerous Webinars that help customers learn more about trading everything from simple calls and puts to complex four-legged strategies and more. The trading application allows you to build a spread with up to eight legs.

Over the past year, tradeMonster has spent a lot of time developing a fully functional mobile platform, which includes streaming data and the ability to build multi-leg options orders. Jim Swartout, the firm’s president, says that its patent-pending mobile app “provides the ability to take your desktop with you. It’s anywhere, anytime, and fully functional from any mobile device.” Although the new scanning tool, liveScan, is not yet integrated into the mobile application, this is a terrific, comprehensive platform.

Other brokers now license Interactive Brokers technology, including Place Trade. As a result, we can’t credit it for the system, but we do like third-place finisher just the same. Sarah Place, the firm’s CEO and namesake, has a slightly higher fee structure for online trading (placetrade.com) than IB, but distinguishes herself with a full-service brokerage boasting a team of experienced advisors. Place Trade also has a larger roster of mutual funds than IB, and tends to have a longer-term investment outlook for its clients. What we like most about Place Trade is that its friendly, attentive service complements IB platform.

Our top three picks, IB, tradeMonster and Place Trade each offer a distinct experience, whether it’s high-frequency professional stock trading or option analysis or high-touch service. That may not be right for you. So we strongly suggest you check out our all of our picks, regardless of star ranking, in the hope one meets your needs.

The following eight brokers all merited four stars in our opinion, which means we like them (click here for the entire list). They offer very different experiences, however, and so you should review them bearing in mind that some may be a much better fit for your trading and investment needs than others. We’ve ordered them by their numerical rank in our system

TD Ameritrade is next on Barron’s overall list, primarily based on the tools available on its thinkorswim platform, which is now fully integrated, giving access to all customers. One thing that Senior VP Steve Quirk likes to emphasize is that its pricing model, while at the top of the stock commission scale, is all-in, so you’re not paying extra for data feeds or third-party research tools.

There are four distinct platforms offered by TD Ameritrade; we focused most closely on the thinkorswim application and the mobile offerings. Thinkorswim was our top selection for several years, most recently 2010. The other two platforms are the standard Website and a bridge application, Trade Architect, which helps investors shift toward the more complex thinkorswim.

On thinkorswim, the charting application has been beefed up, and the Learning Center includes new videos outlining the updated features. For covered call traders, the platform includes a Covered Call Strategy Roller, which lets you buy back the call you sold at the point when it’s about to expire while selling a call with an expiration date that is further out. The roller works with regular monthly expirations as well as weekly ones.

When placing an order, the price that is automatically set on the ticket is at the midpoint between bid and ask, which you can easily modify. You can also check out every possible options statistic, and fully customize your trading experience.

If you find safety in numbers, TD Ameritrade is indeed a safe place to have an account.

TradeStation offers an incredible platform that’s ideal for the technical analyst and those who want to automate a trading strategy. Thanks to its parent, Japan’s Monex Group, TradeStation is building a global trading system. Vice President Janette Perez says, “We meet you where you are, and elevate your trading.”

You’ll get a lot of help when you first become a TradeStation customer, with support staff figuring out where you are in your trading career and helping you customize the flexible platform for your needs. There are numerous Webinars available throughout the week to keep you in touch with the markets, from a weekly futures market outlook to a daily stock-market session. In addition, there is video help built in to almost every screen.

The trading experience can be completely customized, allowing you to trade from grids, charts, or market-depth screens. The news screen now features the Benzinga Sentiment Rating, which assigns a bullish or bearish sentiment to every story. The only reason this brokerage doesn’t receive 4½ stars is that its mobile offering is not very strong, but that’s a reflection of what its strategy-oriented customers want (or don’t want).

OptionsHouse, as you might imagine, is focused on the retail options trader, and its platform includes some terrific professional-grade tools that are adapted from its parent company’s technology (options market-maker Peak6). Their mobile platforms, which are all device-specific, are easily customized. There are some slight differences between the Android and iOS platforms, but they’re minimal. The way the apps adjust to the device you’re using is very well done.

You can save your username and password for the mobile app on the device if you’d like (this was a popular customer request) or you can tack on another layer of security with two-factor authentication. The grid layout displays your positions and watchlists, which are color-coded to let you know whether you’ve got a gain or a loss.

On the Web-based platform, the Risk Viewer feature takes center stage, showing theoretical P&Ls and a risk score for every position. As CEO George Ruhana explains, “We want our customers to use this to keep their portfolios safe.” You can even project what the risk score for a position will be at a future date.

The platform’s Trade Generator runs a strategy finder against your existing positions or against any watch list you may have set up. A market-scanning feature, Spread Investigator, shows you spread ideas based on your market sentiment and the amount you want to invest. You can take advantage of OptionsHouse’s education offerings to learn more about options, risk, strategy trading, and hedging.

OptionsXpress is gradually being integrated into its parent, Charles Schwab, but will operate on its own until 2015. CEO Joseph Vietri says, “We are continuing to innovate while integrating.”

OptionsXpress’ four-star platform contains two of my favorite Web-based features: the Idea Hub and the All-in-One Trading Ticket. The Idea Hub generates trading ideas based on real-time filters. This tool can help investors find trading opportunities based on their preferred strategies and market views, neatly packaging the output from a variety of analytical tools, generating actionable options-trading ideas. The All-in-One Trade Ticket is a flexible order generator, and is now included in the mobile platforms. This broker is making huge strides in unifying the mobile and computer-based trading experience.

Another feature launched in the last year, Walk Limit Order type, can be used for spreads with up to four legs as well as for covered calls and protective puts. This feature will continue to be enhanced, most recently with customizable start prices and price increments.

You’ll find quite a few opportunities to enhance your trading knowledge, especially about derivatives. Futures trading is integrated into the optionsXpress platform; those new to this asset class are encouraged to try it out on the virtual trading platform before jumping in with real money.

TradeKing has come through its merger with Zecco in good shape. CEO Don Montanaro says, “We brought the best of the two firms together, and got it done pretty quickly.” They were able to add new mobile apps, an upgraded research center, and foreign exchange trading over a seven-month period, which is quite remarkable. You’ll see a merger of the Zecco and TradeKing colors and logos when you check out the site now.

The screening capabilities, especially for stocks and ETFs, were much improved during the merger. You click on the button corresponding to the item you want to filter, such as P/E ratio. There are a number of pre-programmed screens, which you can edit and save, or you can start from scratch and build your own.

The newly-launched TradeKing Live platform displays streaming data, and is intended to offer up the same experience on different devices. The platform is designed to serve the needs of active traders and includes a decent charting package that will be enhanced over time. The Options Strategy Workbench helps you build an options trade in a flexible and educational way.

Montanaro says, “In order to innovate you need resources. We feel like we crossed over that [with the merger] and are in the stage to have the fuel to really grow and compete at a different level.”

Fidelity, one of the first to jump into mobile trading, now has apps with a customizable home screen for all devices. The iPad app is especially elegant, with a view of global markets at startup and a task bar on the bottom with access to accounts, news and insights, research, and watch lists. You can see your watchlists without logging in for a 30-day period; you only have to log in when you want to trade or see account-specific information. This is a fast, efficient way to stay on top of your account.

On the mobile apps, trading is one click away from any screen. They include advanced charting as well as searchable news and a link to the Trefis application, which gives you a visual breakdown of a company’s stock price. The iPad app even lets you adjust the Trefis model and play with future earnings estimates.

Fidelity has worked hard on its learning center and has added quite a bit of new content. You can attend demos on the various platforms, or sign up for classes such as “Generating Strategy Ideas.” The topics are organized by trading level. Vice President Franklin Gold says, “We understand that people learn in different ways and it’s important to address them in a style that makes them comfortable. “

The screeners on the Website include Recognia events, which let you scan for technical developments as well as fundamental ones, all in one screen. We also like the new features included in the “My Research” tool, which features a carousel display of your watch list at the time of the screen. You can arrange the screen to your specifications, and see streaming news from a variety of sources. This was a way to help customers focus the research capabilities that Fidelity offers in an easy-to-use and personalized way.

E*Trade has enhanced its Website with the E*Trade 360 feature, which gives streaming data to all its customers. The layout is customizable and lets you arrange up to 10 “widgets” at a time, such as charts, watch lists, and news. There is context-sensitive help on every screen called “Ask Eva,” also known as the E*Trade Virtual Assistant.

You’ll find a lot of long-term planning tools on the site based on various life stages. These tools let you plan, allocate, choose investments, and monitor them over time.

The active trading application, E*Trade Pro, includes a terrific strategy scanner which includes pre-set strategies as well as a “wizard” that lets you build your own. You can backtest the result of a strategy, and then optimize it based on those results. This scanner adds discipline and removes emotion, which is important for active traders.

The charting features in E*Trade Pro were also enhanced in the last year, and include the ability to trade from a chart. The news feature was also upgraded, with filters and top news by symbol, sector or industry. Futures trading will be launched on the Pro platform later this month.

E*Trade’s mobile apps were also redesigned in the past year. On the iPad, you can see a variety of performance charts and analyst research reports as well as a streaming CNBC widget, which you can set to audio-only. The iPhone and Android apps include a barcode scanner, which give you details on any publicly-traded company associated with a product you might find at, say, a grocery store. You’ll also find most of the education resources on your mobile device as well.

Charles Schwab earned four stars though its total score was lower than the rest of this crew. One issue is that they are encouraging options-centric customers to open an optionsXpress account for more complex derivatives transactions; many of those features are not yet included in the Schwab platform. With all the integration going on between the two firms, they have made it extremely easy to move cash back and forth from one to the other, so if you’re a Schwab customer hungry for additional options and futures trading capabilities, it makes sense to move some of your money to an optionsXpress account. Within two or three years, they’ll all be Schwab accounts again.

Schwab has created a new trading platform, StreetSmart Edge, which all customers can now use. (Previously you had to qualify with either a large account size or frequent trading.) The platform is nicely designed and can be customized, and also allows you to launch optionsXpress for futures trading. The data reside in the cloud, so all the mobile platforms access the same watch lists and positions.

The Investor Learning Center includes platform-usage classes as well as offerings on how to trade various asset classes. There is also research that supports international trading, including country ratings and quotes from multiple exchanges. If you want to find out where to trade Vodafone for the best price, for example, you can get real time quotes from all the associated exchanges on the same screen.

There is dedicated support for active traders at Schwab, as well as for those with large accounts. One minor criticism: You still have to fill out paper forms in order to gain additional trading permissions for options or margin. Almost every other broker does this online, which saves time and trees.

Lightspeed Trading (3½ stars) has enabled complex options trading, and is partnering with education providers to inform their customers, via webinar, of the ways to trade. “Options trading is an important part of the growth of Lightspeed, so we’re spending time and resources on making it a good experience for our customers,” says CEO Stephen Ehrlich. New education providers include RiskReversal.com and CyberTradingUniversity.com. The platform includes tools that active equity traders are comfortable with, and extends those tools to options trading.

Last week, Lightspeed announced that it is teaming up with Chronos Technologies to offer the Iris Pairs Trading Software to its clients. Iris is a customizable market-neutral trading system designed to decipher recognizable patterns in correlated instruments, then execute a trade when specific conditions are met.

With its focus on speed, stability, service and price, Lightspeed has attracted frequent traders, many of whom are professionals, who want to customize their experience and choose how an order is routed. Their mobile apps are focused on providing education content rather than on trading. “For our client type, mobile is still too slow and cumbersome, inhibiting their active trading strategies,” says Ehrlich. Given the tools, speed, and pricing model, though, this is a good home for an active trader.

Merrill Edge (3½ stars) has changed the terms of its Platinum Program so that customers with $50,000 or more in assets at Bank of America and Merrill Edge receive 30 free trades per month, plus lower fees on several other services. Previously you had to hold $25,000 in cash to qualify. The firm is also expanding the number of agents available in BofA bank branches; there are approximately 1,500 now, and the plan is to grow that to 2,000 by the end of the year. “We’re building one-on-one relationships,” says Alok Prasad, head of Merrill Edge.

Online, the platform sports a number of welcome enhancements, including an always-present trade ticket and customizable trading preferences. Streaming quotes have been made available for free to all customers, and a new options strategy scanner lets you find trading opportunities. The mobile apps were upgraded to allow multi-leg options trading.

Bank of America customers will find seamless integration with their accounts, with instant cash transfer and rewards for the combined relationship. The firm plans to more fully engage its growing Gen Y customer base with additional long-term investing and advisory capabilities.

ChoiceTrade (3½ stars) concentrated on adding trade idea generators and educational tools to its platform over the last year in order to assist its diversified client base to be more successful investors. They are now affiliated with Investview, which offers five different courses for traders via Webinar. The content ranges from the very basic, such as “What is a broker?” up to more complex topics such as “How can I trade an iron condor?”

One addition to ChoiceTrade’s platform this year is the WatchPlus order staging tool. This feature lets you build a trade and then set it aside until you’re ready to pull the trigger. It ties in to the InvestView Webinars as the instructors show you how to put together a particular order. Newcomers to complex trading can use ChoiceTrade’s paper trading feature, which includes the WatchPlus feature. They are also sending trading ideas to their customer base several times a week.

Scottrade (3 stars) launched several new features over the last year, including the Positions Page and the Quick Trade Bar. The former lets you customize your view of the positions you hold in your account, allowing several layers of sorting as well as changing the order of columns. You can view the top three analyst reports available for every position, and stay on top of your gainers and losers. The Quick Trade Bar is a detachable toolbar that can accompany you around the Internet, allowing you to view market updates and quotes even when you’re not on the Scottrade Website. You can also quickly place a trade.

Scottrade offers a great deal of personal service, including educational seminars at all of its branches. There are also Webcasts in English, Spanish and Chinese on the Website. You’ll find a lot of information about changes in cost-basis reporting in its Education Center.

Just2Trade (3 stars) will be launching a new streaming application within the next month or two, but it was not available for this review. The firm has added a number of features to its Website, including Level II quotes and a quick order entry ticket. You can also set up a dividend-paying stock for reinvestment at the time you place the initial order; in the past you had to call the firm and ask.

On the positions page, a stock that has dividend activity is highlighted in orange. Quotes now stream in real-time, and clicking on a price populates an order ticket. Commissions are still just $2.50 per transaction.

Capital One ShareBuilder (3 stars) lowered its fees for real-time trades effective March 1 to $6.95 per transaction. Following its acquisition by Capital One, ShareBuilder has been heavily investing in enhancing its Web-based and mobile platforms. It bulked up the investment screeners for stocks, ETFs and mutual funds to allow customers to scan a great deal of fundamental data.

One new feature that is very intriguing is True Equity Exposure, which measures your asset allocations based on not only individual securities, but also by the mix of ETFs and mutual funds you hold. You may hold, say, 100 shares of Microsoft in your account, but the ETFs and mutual funds you own may expose you to a lot more of that stock. It’s a good tool to figure out if you’re overweight in a particular sector.

SogoTrade (3 stars) introduced a new platform, Sogo Online, which is a fairly basic, non-streaming stock and option entry platform. Ray Williamson, manager of broker operations for SogoTrade, says that its foreign clients like this platform. The streaming application, Sogo Trader, is open to all customers with no minimums.

SogoTrade added quite a bit of options functionality over the last year along with an advanced stock screener. Options traders can use the Sogo Options platform, which includes streaming options chains by strike, and the ability to view streaming quotes on a chosen strategy. You can also engage in the firm’s new options education series, Options Boot Camp.

SpeedTrader (2½ stars) offers both a streaming Web platform as well as a downloadable platform; the latter is available for $49 and up per month (the fees are waived if you generate enough commissions). You’ll find all the screeners on the Web platform though. SpeedTrader has very basic mobile apps that allow you to enter orders and check your balances. The Pro platform is a little dated, but SpeedTrader says that many of its customers use their own front end or black box for trading, and just connect to its execution engine.

When you sign up for an account, you have to choose either a per-trade or per-share commission structure.

TradingBlock (2½ stars) grew its funded account base and daily average trades by 250% last year and launched two new platforms though not much was done to its basic Web platform. TradingBlock Professional caters to active stock and options traders and includes several customizable proprietary scanners. It also took advantage of the shuttering of BrokersXpress, a subsidiary of optionsXpress, last summer by launching MoneyBlock, which caters to registered representatives and investment advisors.

The firm is working to carry its technology to mobile platforms.

Firstrade (2 stars) offers access to streaming quotes for its top-tier users and has added Morningstar analysis for stocks and ETFs. It’s working on new scanners and screeners which it expects to introduce later this year. There are 10 ETFs that you can trade commission-free here. This is a very basic trading platform.

eOption (2 stars) didn’t do much last year to enhance its platform, but is expecting to roll out new technology and change clearing firms later this year. It still offers its eOption Direct platform, aimed at more active options traders who want streaming data. Though commissions are quite low—it’s the cost leader this year—you’ll pay $50 per month for the streaming platform.

The firm works with approximately 65 newsletter publishers and enables automatic trading of their strategies.

Cobra Trading (2 stars) offers three platforms, one of which (Venom Trading) is Web-based. You can also use RealTick or CobraIQ, which are downloadable platforms, at an additional fee. You can trade stocks, options, ETFs and futures with Cobra.

Kapitall (2 stars) has an amazing interface that’s based on gaming technology and social interaction, but you can still only trade stocks in a cash account here. There’s no mobile access either. This is a really fascinating research platform, with a variety of ways to search for stocks, but it’s still too narrow to recommend.

How We Ranked Our Best Online Brokers

Trading Technology: This category represents the overall workflow for placing an order as well as the order-routing technology.

We evaluated the quality of the data available prior to placing an order with an emphasis on streaming real-time data. A real-time quote that is displayed without any additional user input (such as typing the symbol into a separate box or hitting a “Quote” button) receives credit here; if the trader has to make a duplicate entry of the ticker symbol to get a quote, the broker got zero. We checked out the ways a trader is told that an order is executed, such as pop-up notices or an order status screen that is updated when the order fills.

We looked for prefilled order tickets when selling a position, which eliminates possible errors during the closing process. We also evaluated the options order entry process, as well as mutual-fund, bond, and (when available) futures, commodities and foreign-exchange order-entry screens. Methods for placing conditional orders, such as one-cancels-another or one-triggers-another, were checked out.

The availability of price-improvement strategies and smart-order routing technology (which finds the best bid or offer) is necessary to earn top ratings in this category. We asked whether a broker’s order routing engine used a spray or sequential engine; spray routing contacts multiple venues simultaneously and is less inclined to execute orders via routes that offer payment for order flow. Brokers offering price improvement—a sale above the bid price, a buy below the offer—received a fraction of a point depending on the portion of their transactions that benefited.

Top marks were earned by brokers who offered a wide array of order types, including conditional orders, and had spray order routing technology. The ability to place a trade from a graph earned a fraction of a point. In addition, we looked for ways to customize the trading experience, such as setting a default number of shares or contracts, to speed order entry. The order entry-and-execution process must flow easily from one step to the next, with streaming real-time information (including buying power and margin balance) available when needed.

Usability: A 5 here means the site or program was easy to use and well-designed, didn’t bog down when moving from screen to screen, and can be tailored to the user’s needs. We looked at how easy it is to get started on the platform or Website as a new customer. Constant availability of a trading ticket, and easy access to research and account status data is key. Being able to easily switch from one area of the Website or program to another is important here, as are customization options.

Mobile: The availability and quality of mobile trading and account data are measured here, as well as education opportunities that you can take along for the ride. We looked for streaming real-time data, including charting and news. We looked for ways to trade stock and options on your tablet or smart phone; the ability to trade other asset classes is a plus. Cross-platform integration is key; when you set up a watchlist on your desktop, it should be available on your mobile device as well. We also considered the workflow for placing an order and managing an account. To earn a 5 in this category, a broker must offer the ability to place complex options transactions and conditional orders, and be able to share watchlists and trade ideas with the customer’s desktop or Web-based offering.

Range of Offerings: We awarded points for the diversity of investments that can be traded online, with partial points given for those that can only be traded offline. Since long and short stock-trading, as well as single-leg options orders are now standard, we don’t award points for those transactions. We asked brokers how many stocks, on average, their customers can sell short, and awarded up to a half-point based on their answer. Complex options trading, and the availability of mutual funds, bonds, futures, commodities and international trading were also considered. A 5 in this category means you can execute all of these transactions online.

Research Amenities: This category measures the quality and accessibility of research, quotes and charting. We looked for research, news and charting linked to a customer’s portfolio and watch lists; the quality of third-party research and its integration with the rest of the site; and the availability of screeners, with special emphasis on screeners. This year, we delved more deeply into the available screeners, awarding points for the ability to customize a filter and generate precise and actionable results. Brokers also won points for offering real-time streaming quotes at no additional cost, powerful charting capabilities, and Level II quotes. Partial credit was awarded for features that generated an extra fee.

Portfolio Analysis and Reports: The emphasis here is on clearly laid-out reports, updated in real time, showing current balances, positions and margin status. Customizable portfolio-analysis reports, with links to news and research, as well as extensive transaction history, are most desirable. Tax reporting also falls in this category. Full credit is given for reports that can be created on the broker’s Website, with no additional fees or data entry required. Partial credit is awarded to brokers that populate services such as GainsKeeper and Maxit (tax analysis and reporting programs) for an additional fee.

Customer Service and Education: We sized up online help such as live-chat capability, user guides and frequently-asked-question files. Offline help was assessed by making calls to customer service, and weighing the brokers’ reports of the average time spent on hold when a customer calls in. We took a look at the education offerings, both online and live. The ability to visit a broker in person, and to access the account via a mobile device, is taken into account here.

Costs: We looked at commissions for stock and options trades and margin interest rates, giving more points for lower costs. We scaled the points awarded so that the lowest costs in the group earned the maximum number of points, with fractions (and occasional zeros) given to the more expensive brokers. Stock and options commissions are the biggest factor here, but mutual-fund and other transaction fees are also considered. A 5 could be earned here by very low stock and mutual-fund commissions, $4 or less for 10 options contracts, margin interest rates below 2%, and no account-maintenance fees.

Published in Barron’s, March 11, 2013. 

Posted by twcarey on 03/16 at 01:49 AM
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Saturday, March 09, 2013

Apple in Small Bites

Mini-options bring some high-priced stocks and exchange-traded funds within reach of more investors. And, the Nasdaq will open earlier.

As options’ popularity has grown among retail traders over the last decade, the exchanges have responded with more products. Weekly options, introduced in 2005, have gained to the point that the top options-centric online brokers report that they comprise almost half of their options volume this year. Most expect weekly options to pass regular monthly options in volume this year.

On March 18, the exchanges will introduce mini-options on three high-priced active stocks and two exchange-traded funds: Apple (ticker: AAPL), Google (GOOG), Amazon (AMZN), SPDR S&P 500 ETF Trust (SPY) and SPDR Gold ETF (GLD). All of these equities are priced well over $100 per share, which makes it tough for most retail investors to buy them in 100-share blocks. The new mini-options will make them more affordable—representing just 10 shares of stock.

Under the traditional 100-share terms, near-the-money April calls for Apple, for example, are in the $15-$20 range for a contract, so a single call option could set you back about $2,000. If you were to write a covered call—buying 100 shares of Apple and selling the April 440 strike—you’d be looking at a price tag of over $42,000. Investors could wait for a stock split or two to make these pricey stocks easier to buy, but they’d have to wait a long time. So to keep the little guy involved, mini-options are coming.

The options-centric brokers are thrilled about mini-options. The initial launch of mini-options will be monthly expirations though most expect weekly versions to follow if volumes indicate enough interest.

“I think there is going to be demand from customers who have a hard time expressing their views in these higher dollar stocks currently. Obviously, there needs to be support from the professional trading community to make them really attractive,” says George Ruhana, CEO of OptionsHouse.

One issue is that the exchanges have not yet announced their fees. Though Ruhana expects the minis to be successful, he adds, “If they [the exchanges] make it prohibitively expensive for market makers to do business in the minis, there is a chance that the markets [price spreads] could be wider than those on the regular contracts. If that is the case, then the product will struggle.” Ruhana believes that professional market makers, such as his firm’s parent company, Peak6, should keep the spreads (the difference between the bid and ask price) fairly tight on the minis in order to make them attractive to retail traders.

Since the exchanges haven’t yet published their fee schedules, brokers haven’t announced their commissions either. I would be pleasantly surprised to see fees lowered for the mini-options, though I suspect that the commissions will be similar to, or the same as, on regular options. You can still use your broker’s analytical tools to figure out which strategy to trade, and trading odd lots of under 100 shares of stock usually generates the same commission as a regular 100-share lot.

Rooster Time
Another change planned for March 18 is the 4 a.m. Eastern time opening of pre-market trading on the Nasdaq. NYSE’s ARCA exchange has allowed 4 a.m. pre-market trades since 2005, but having the Nasdaq step in should, in theory, bring in more volume.

Stephen Ehrlich, CEO of Lightspeed Trading, says, “The 4 a.m. Nasdaq pre-market open won’t make a huge impact right away, but I believe that it will be bigger as time goes on. The early open gathers more order flow and is primarily a benefit for traders who take an overnight position, and allows them to exit earlier in the day at a more favorable price.” Ehrlich notes that the equity space between 9:30 a.m. and 4 p.m. has become extremely crowded, and big news is usually announced after the markets close at 4 p.m. “People willing to wake up early have found that this is the new frontier,” says Ehrlich. Or on the west coast, stay up late.

Published in Barron’s, March 4, 2013. 

Posted by twcarey on 03/09 at 01:14 AM
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Saturday, February 23, 2013

Wading Into Dark Pools

The NYSE’s dark pool for small investors hasn’t been disruptive to trading as some had feared, in part because it’s still so small.

The New York Stock Exchange announced last summer that it was launching a new venue for orders called the “retail liquidity program.” The idea, the exchange said, was to level the playing field between retail investors and institutional traders, giving individuals better pricing terms on stock transactions that only they could access. The proposal caused a small firestorm among the bourse’s rivals; they worried that the NYSE was muscling in on their turf and could disrupt order flow. It’s been about six months, so how has the program done?

First, we need some basic information. The exchange said at the outset that this new system would “provide potential price improvement to incoming order flow in the form of nondisplayed interest that is better than the protected best bid/offer.” What does that mean? Price improvement is the execution of an order at a better price than what’s being publicly quoted.

The phrase “nondisplayed interest” is industry code for a dark pool—a fluid, private institutional stock market that trades large amounts of shares outside of the normal stock exchanges. Here anonymous participants, often hedge funds or high-frequency traders, can enter orders that, if matched by others in the pool, get executed. The price of the trade has to be at or between what’s known as the national best bid or offer. So the NYSE was creating a dark pool that would give the small investor a chance to get a better price.

Some questioned the Big Board’s motives because more than half of all stock orders are completed outside public exchanges. That doesn’t please the NYSE and may cut liquidity for small investors.

Other exchanges and electronic clearing networks complained that it could hurt the order process. In the past, established exchanges like the NYSE were prevented by the Securities and Exchange Commission from offering price improvement. The private venues offering price improvement usually used the exchanges’ publicly displayed prices as a basis for comparison. If the NYSE was offering price improvement, the relationship would change, possibly creating order problems, said critics.

As far as we can tell, the NYSE liquidity program, which doesn’t allow algorithmic or black-box trading, is a minor success and hasn’t disrupted order flow. However, that could be due to the limited number of retail brokers participating. The NYSE says that about nine million shares per day are being exchanged in the system now, up sharply from its start but still a small piece of the action.

Interactive Brokers added the NYSE retail liquidity program as soon as it came online, says Steve Sanders, executive vice president of marketing and product development. So far, Sanders says customers who have executed trades on the RLP have enjoyed price improvement and exchange rebates that have reduced their trading costs by about $0.0023 per share. In January, IB customers executed three million shares via the new exchange.

Don Montanaro, CEO of TradeKing, says that orders placed by his clients are processed through a variety of smart routers from a number of liquidity-providing partners, and that some of those routers connect to the NYSE RLP. “We do not provide our clients with the ability to direct specific orders,” Montanaro notes.

A couple of online brokerage officials say that they do not route to the NYSE at all, because they want to keep their clients from incurring added trading costs.

Shawn Herrin, a senior vice president at eOption, says his firm’s routers do not access the NYSE program. His clearing firm, Apex Clearing, “has put a number of restrictions on our ability to use non-Apex destinations,” he says. Herrin expects that situation to change later in the year.

Owing to some of these limits, Montanaro says it’s too early to tell about the RLP. But, he adds, “More liquidity and price improvement are always good for small investors. If they can grow the volume and liquidity, it should be beneficial.”

Published in Barron’s, February 18, 2013. 

Posted by twcarey on 02/23 at 04:28 AM
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Saturday, February 09, 2013

Brand New at Brokers

A look at the ways online brokers are polishing their platforms so far in 2013.

Online brokers have been busy sprucing up their platforms in the new year. Here are some of the goodies.

TRADEMONSTER HAS enhanced its scanning tools to allow traders to create their own customized searches in a database of streaming quotes and other metrics. An extension of the brokerage’s liveAction tool kit, which searches through about 100 preset market scans, this new wrinkle lets customers define up to 50 of their own scans, which can be named, stored, and used again, as desired. The idea behind the liveAction feature is to permit clients to search in real time for emerging profit opportunities, rather than waiting until end-of-day data are available.

The main liveAction scanning tool is organized into preset areas—unusual activity, volatility, fundamentals, and technical activity. The new item on the menu is “my scans,” which lets you create your own parameters. You tell the scanner whether you want to look for securities or optionable securities. The latter will return only stocks that have options available. As you add a filter to a scan, such as a price range for the underlying stock or a market sector, the running total of stocks that fit the scan is displayed on the top right of the screen.

You can preview the result of your scan in a list on the screen, or save the ticker symbols as part of a watch list. You also can bring up a trade ticket if you see something that spurs you to immediate action.

Also new for TradeMonster is a weekly educational program titled “I want to be a trader.” The series combines a Webinar with feedback on your trading and is hosted by TradeMonster’s own “professor,” Don Pratl. It’s open to customers as well as noncustomers.

TRADEKING AND ZECCO have completed their merger under the TradeKing banner. That’s all for the Zecco brand, as its most popular tools are integrated into the TradeKing platform. The Website now sports a redesigned research center, along with an alerts center that allows customers to receive notices of specific events delivered to both e-mail and a mobile device.

Zecco’s foreign-exchange operation has been rebranded as well, and now appears as TradeKing Forex. Customers can trade over 50 currency pairs, as well as gold and silver. The forex platform is a separate entity from the regular TradeKing site, though, so you will need a separate log-in. You can start with a practice account on the forex platform, and take advantage of the educational tools available as well, before putting real dough to work.

LIGHTSPEED ADDED advanced options trading to the latest, 8.0, version of its platform, allowing customers to trade multi-leg strategies—such as debit and credit spreads, straddles, strangles, and butterflies—or a custom strategy that can include equity legs. This platform is built for sophisticated frequent traders, and though it is flexible enough to allow you to define a huge variety of complex options orders, it is not warm and friendly, or immediately intuitive.

The Lightspeed platform lets you route your order to the options exchange you prefer, and reverse the strategy quickly should your feelings change about the market. You can also save your favorite strategies for faster input in the future.

Another feature recently added is the “executions” window. It allows you to view the margin requirements on all your open orders and trades, so you can more efficiently make use of margin loans. It lets you manually hedge your positions and strategies, or use an automatic-hedge feature to hedge all eligible positions for the best utilization of margin. For high-frequency traders who make use of margin, this feature could save you money, or just permit you to use margin more efficiently.

A FINAL NOTE: Those of you who wrote us regarding our coming annual review of online brokers were very concerned about the miscellaneous fees that various brokers charge. We have added queries about many of them to our survey, such as voluntary reorganization fees for corporate actions. Thanks to everyone who responded.

Published in Barron’s, February 4, 2013. 

Posted by twcarey on 02/09 at 04:26 PM
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