Investor Brain

Saturday, March 12, 2011

New Tools to Help Manage Risk

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

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

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

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

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

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

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

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

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

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

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

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

Published in Barron’s, March 7, 2011. 

Friday, March 11, 2011

Scoring Rubric for the 2011 Online Broker Review

We put 24 online brokers through a variety of paces.  To participate, each broker filled out an extensive Excel-based survey, and gave us access to a live account.  Several brokers we contacted to take part in the survey, including Vanguard, could not give us a live account, so they are not included in the survey. 

Here is what we went through to rank the brokers this year. 

WE RANKED OUR 24 BROKERS USING THE FOLLOWING MEASURES:

Trade Experience: Working with a live account, we looked for a real-time quote and executed equity trades during market hours, making market buys and limit sales of a stock or exchange-traded fund. 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 looked for a real-time streaming quote that updates automatically.  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. 

Following the market buy, we tracked the execution and portfolio reports. We looked for pre-filled order tickets when selling a position, which eliminates possible errors during the closing process. After entering a limit-sale order, we examined the open-order reports and looked at ways to check the progress of the order, as well as ways to adjust the limit price or cancel the order. A key component going forward is the ability to select a tax lot when closing a position. 

We also placed options orders, using options’ order-entry screens when available. We also examined 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.
An overall score of 5 in Trade Experience means the order entry-and-execution process flowed easily from one step to the next, with streaming real-time information (including buying power and margin balance) available when needed.

Trading Technology: The availability of price-improvement strategies and smart-order routing technology (which finds the best bid or offer) are necessary to earn a 5 in this category. This year we asked whether a broker’s order routing engine used a spray or sequential engine; spray routing contacts multiple venues simultaneously and are 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.

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 key here, as are customization options. 

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 all the brokers allow long and short stock-trading, as well as single-leg options orders online, 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 options-strategy screeners. 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. 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. 

Saturday, February 26, 2011

Getting a Tax Break

A large number of online brokers still don’t give investors much choice on the accounting treatment of their stock sales.

When we recently surveyed our readers about what they most wanted from their online brokers, a majority said they were concerned about the new Internal Revenue Service cost-basis regulations that go into effect this year.

Brokers are now required to report the cost basis of any of your stock holdings to the IRS when you sell them. Those cost-basis reporting requirements will be extended to mutual funds in 2012 and to options in 2013.

On the face of it, having your broker report your cost basis should help at tax time. You won’t have to dig around and figure out how much you paid for a certain stock because it will be right there on your 1099. In theory, at least, the new requirement is straightforward. But it opens up quite a few cans of worms.

One feature we look for when we review online brokers–either individually or as part of our annual rankings (the next one is due out March 14)–is the ability to choose which lot of stock you’re selling at the time you place your closing order. For instance, if you’ve been piling up shares of General Electric (ticker: GE) over time, purchasing several hundred a year for the past 10 years, you will want to specify exactly which batches of those shares you’re selling.

THIS IS AN IMPORTANT ISSUE. You may want to choose the highest-cost lots of stock that you’ve held for more than a year to minimize your capital-gains tax. Or you may want to sell your cheapest lots and just take the tax hit now. If you’re the sort of investor who buys the same stock, especially if you plan to hold it for the long term, being able to choose which shares you’re selling will help you control your taxable income each year.

Most brokers have you set up your cost-basis system when you open an account, selecting LIFO (last in, first out), FIFO (first in, first out) or average cost as their system of tax reporting. But few brokers let you choose which shares you are actually selling when you close a position.

Among those that have built the capability into their platforms: E*Trade (http://www.etrade.com), Fidelity (http://www.fidelity.com), MB Trading (http://www.mbtrading.com), optionsXpress (http://www.optionsxpress.com), Muriel Siebert (http://www.siebertnet.com), Charles Schwab (http://www.schwab.com) and TD Ameritrade (http://www.tdameritrade.com).

OptionsHouse (http://www.optionshouse.com) is rolling out a new platform this month that lets a customer pick a tax lot.

Brokers that focus on active traders, such as Interactive Brokers (http://www.interactivebrokers.com) and Lightspeed Trading (http://www.lightspeed.com) don’t let you choose a tax lot, but they also don’t expect their customers to hold onto their positions for very long.

AS STEVE SANDERS, vice president at Interactive Brokers, explains, choosing a tax lot before a trade just isn’t very important to his customers, though it may be to other sorts of traders. Because IB clients typically buy and sell very quickly, “our customers wouldn’t have time to choose lots before a trade,” Sanders notes. Instead, the customers can let IB’s computer decide how to match a particular trade to specific tax lots.

In fact, few brokers who focus on buy-and-hold investors make it easy to link trades and tax lots.

For example, to assign a tax lot, a Scottrade (http://www.scottrade.com) customer must call the firm the day after a trade. And quite a few, including Firstrade, eOption, Cobra Trading and TradingBlock, either don’t allow you to choose or ask you to call a broker.

The bottom line: Make sure that your online broker offers you the tools you need.

Published in Barron’s, February 21, 2011. 

Saturday, February 12, 2011

Fidelity Floats on a Cloud

The huge asset manager introduces a new Web-based app for its active trader customers.

Active traders can now access Fidelity Investments via the cloud.

For several years the fund giant has provided a software application that active traders can download onto their own computer systems. Now the firm is offering a Web-based application via its site or through its activetraderpro.com site. It includes a variety of streaming tools, such as quotes and charts, and links to research available on the regular Fidelity site.

"The new platform fills a key gap in terms of what our active-trading clients are asking for. Mac users wanted active-trading tools without having to use Windows emulation software, and people who trade from multiple computers also wanted these streaming tools,” explains James Burton, president of Fidelity Brokerage Services.

Having what some refer to as a “bridge” application that provides the functions of downloadable software available on the Web is a relatively new development for online brokers. TradeMonster and optionsXpress already offer similar applications and more are on the way. These additions will bring more customization and streaming data to more customers.

The Web application, written in-house in Microsoft Silverlight, will eventually be nearly identical to the downloadable platform. Burton says some features are only available on the desktop version simply because it has more processing power, but that the Web release will have some items for traders that the downloaded version does not.

We took a look at the features available by clicking on a link in the Fidelity.com Portfolio page, which opens a window on your desktop. Like the downloadable version, you are presented with a default desktop view that you can customize so the tools you want are where you want them.

The streaming news feature is well designed, showing headlines for symbols in your portfolio, or watch list, or for particular sectors you want to track. You can rearrange the blocks of headlines so that the items on subjects or companies that interest you most are on top. There are more than 20 news providers, including Reuters as well as Barron’s affiliates Dow Jones and MarketWatch; you can filter the feeds to show particular providers if there are some you prefer.

Of utmost importance to frequent traders is real-time data, including how much money you have available to trade and a current price. Your onscreen trade ticket displays this data; you can place the ticket wherever you’d like it to appear. The order-status screen displays working orders placed using any Fidelity application, whether via the Website, your smartphone, or on the phone with a representative. Modifying or canceling an order is easy with the order-status tool. You can trade options.

The streaming chart package includes drawing tools such as trend lines, over 40 technical indicators like moving stock-price averages and a slider bar that lets you define the date range for your study. You can search the indicator list for a specific item, and preview your selected indicator before adding it to the chart. Click on it to add it to the chart, or hit the X in the top right corner of each box to remove it. Once a chart has been customized, you can save the view for future use, no matter where you log in from. The time slider at the bottom gives a visual historical perspective, allowing you to shorten the view or stretch it. As much as 15 years of price history is available.

Activetraderpro.com doesn’t yet offer streaming options chains, which display current quotes for strike prices and expiration dates. However, Jennifer Samalis, vice president of active-trader product development, says Fidelity plans to add those later this year. Most research, and trading for anything besides stocks and options takes you back to the Fidelity Website. The tool is free to qualified Fidelity customers who traded at least 120 times over the previous 12 months and maintain $25,000 in their account. Stock trades are $7.95 per transaction, while options are $7.95 plus 75 cents per contract.

GOING FOR THE GOLD: Interactive Brokers (http://www.interactivebrokers.com) makes it possible to trade two new products through its United Kingdom affiliate. IB Spot Gold gives you access to the London bullion market and IB UK CFDs (Contracts for Difference) let you trade the difference between the current and future price of a share. The latter product attempts to mirror a stock, including its price movements, dividend income, any tax benefits and allows a trader to use additional margin. You can bet for or against the shares.

In order to take advantage of these offerings, you must find out if you are eligible to trade them. U.S. and Canadian residents must complete a questionnaire in the account management screen to see if they qualify.

TAX TIME:I lamented (some would say ranted) last winter about the way publishers of tax-software packages treat options traders—by mostly ignoring them ("Lack of Options in Tax Software,” Electronic Investor, March 1, 2010). Unfortunately, not much has changed this year. TurboTax still doesn’t have a special slot for options, making options traders click all the way through to “Other Investments” if they’re doing manual entry. The omnibus category (stocks and bond merit their own sections) means a lot more key clicks are needed to get the information entered.

While talking with executives from both Intuit’s Turbo Tax (http://www.turbotax.com) and H&R Block (http://www.hrblock.com), I was surprised to learn that there aren’t any options traders advising on product development. Turbo Tax did a good job of automatically importing options transactions from three different online brokers into our test return. But if your financial institution isn’t on their list of providers, you’re stuck in the “Other Investment” category.

If you’re going to do your taxes yourself, TurboTax will make data entry easier due to its extensive links to financial institutions, aided by its acquisition of Mint.com. Still, it’s much more expensive than other personal tax packages, because investors have to buy either the Premium ($49.95 federal) or Home and Business ($74.95 federal) versions. State programs are an additional $36.95.

H&R Block will work well, and at a much lower price, for those of you who primarily trade stocks and mutual funds. You’ll have to buy either the Deluxe version ($29.95 federal) or Premium ($49.95 federal), and lay out an additional $34.95 per state. Both firms allow you one federal e-file per program; if you file multiple returns from the same program, you’ll have to pay extra.

Some day tax software publishers will discover options trading. I’m not holding my breath, though. 

Published in Barron’s, February 7, 2011. 

Saturday, January 29, 2011

Better Trading Site, Same Low Price

Discount broker Just2Trade has improved its platform without raising its rates.

Just2Trade has improved its trading platform without raising its dirt-cheap commission rates. That’s no mean feat. We’ve criticized the discount broker’s site in the past because it didn’t provide portfolio positions and account balances in real time, and we’re happy to report that’s no longer the case.

It’s all part of a continuing process to clean up and improve the site, says Just2Trade CEO Fuad Ahmed. It may be just because the firm has maintained its low fee of $2.50 a stock trade, “there is a perception of quality [issues],” Ahmed explains. “Customers will think something’s got to give, or that features are missing,” but they’re not. Since all Just2Trade programming takes place in-house—many low-cost brokers simply license software and put their logo on it—Ahmed believes that he and his staff have greater control over the resulting design.

Among the updated features, which make Just2Trade’s site (http://www.just2trade.com) comparable with brokers in the $7-to-$15 per-transaction category, are the ability to cancel or modify open orders. You can also set up trailing stops by either a specific dollar amount or percentage loss. Another plus: Just2Trade has included stops for options orders. You can also customize some features of your home page, including displaying balances, positions, news and open orders.

The redesign does have some shortcomings. Just2Trade splits the display of a customer’s balances across three different tabs, forcing you to click each to see your account value, cash available for trading and cash available to withdraw. Most online brokers show all three figures on the same page; splitting up the displays seems inefficient.

To enter an order, you hit the “Get Quote” button after the ticker is entered, and that brings up a real-time quote. However, it doesn’t refresh automatically as prices change, a feature the firm plans to add. At present, you have to click refresh to get an update.

Mobile technology is another item on Just2Trade’s drawing board, says Ahmed. In this case, the designers aim for a summertime release. Multileg options trading should also be available at that time.

Just2Trade does have some capabilities others lack. For instance, it gives you fractional shares of a stock after reinvesting your dividends. Most brokers will only purchase whole shares of stock, then stash any left-over money in your cash balance.

Morningstar research has been integrated into the site, and all content is free to customers. Customizable charts, which will also be free, are to arrive shortly. There are other deep-discount brokers that charge their customers for many of these services, which include Scivantage’s Maxit for capital-gains accounting. “No gimmicks, that is very important to us,” says Ahmed.

You can open an account with Just2-Trade online and start trading quickly. Ahmed says the fastest way to fund your account is via a wire transfer, but you can also establish an automatic clearing house (ACH) connection so you can transfer funds from a bank account.

Just2Trade has packed a fair amount of punch into its site for its low price. What I also like is that what you see is what you get. You aren’t enticed by promises of “free” trades, and then told you have to pay to get real-time quotes or cost-basis tax reporting. You can get more bells and whistles elsewhere, but if you’re looking for a clean interface and no-frills research at a discount price, check out Just2Trade.

E*TRADE CUSTOMERS LOOKING FOR some extra hand-holding can get it at the firm’s recently launched Unified Managed Account (UMA). The account, offered through the firm’s E*Trade Capital Management unit, gives investors access to investment professionals the way a full-service brokerage would. The idea is to offer a more comprehensive approach to asset allocation, specific investments and portfolio and tax management.

Michael Curcio, president and CEO of E*Trade Capital Management, notes that nearly 30% of E*Trade’s (http://www.etrade.com) brokerage accounts are in retirement products such as traditional and Roth IRAs. “We believe our offering is especially well suited for customers and prospects who want help investing to reach their retirement goals,” he says. The UMA is available for portfolios of $250,000 or more with holdings composed of individual stocks, ETFs and mutual funds.

Management fees range from 1.25% of the portfolio value (up to $1 million) to 0.95% (over $5 million).

Fidelity (http://www.fidelity.com) also offers managed accounts of three different types. All three—Portfolio Advisory Services (minimum $50,000 including all retirement accounts), Personalized Portfolios (nonretirement accounts over $200,000) and Personal Trust (trust funds over $200,000)—invest primarily in stock and bond mutual funds, as well as ETFs. Fees range from 0.25% to 1.7% of portfolio value, depending on the particular service you choose and the size of your account.

TRADEKING (http://www.tradeking.com) joins the group of brokers launching iPhone apps, following up on the firm’s popular BlackBerry application. It also works on an iPad; a dedicated iPad app will launch in the next few weeks. The iPhone version can be downloaded free from Apple’s App Store.

BROKER WISH LISTS: We’ve been querying readers in recent weeks about their online broker experiences—and they’ve been responding enthusiastically. One clear concern is the reporting of capital gains, and the ability to specify a tax lot (usually choosing to sell the portion that’s most advantageous for tax purposes) when selling a part of a position. Quite a few brokers do not allow their customers to choose a tax lot—it’s simply first in, first out, or cost average. Some others make their clients phone a broker to sell a specific lot. With new capital-gains reporting rules going into effect for stocks and ETFs purchased after Jan. 1, 2011, it’s important that investors be allowed to choose the tax lots themselves.

Barron’s readers also want more ways to look at their portfolios’ performance to assess what works—and what doesn’t. One astute respondent would like to be able to generate yearly investment performance, net of deposits and withdrawals. Another worry: the security of trading via mobile devices, a subject we plan to address shortly. Keep those cards and letters coming. 

Published in Barron’s, January 24, 2011. 

Saturday, January 08, 2011

New for iPhones, iPads and Androids

Schwab, Firstrade and Fidelity are all introducing new apps for the “smart” investor. Here’s what’s new.

Online brokers are racing to keep pace with the investment possibilities enabled by iPhone, iPad and Android. In recent weeks, Schwab and Firstrade introduced iPhone applications, Fidelity added an Android app, and Schwab’s magazine, On Investing, became available free on the iPad.

Firstrade’s (firstrade.com) iPhone app, which arrived just before Christmas, provides a simple way to get real-time quotes, check your balances and place stock and straightforward options trades. The app, like Firstrade’s Website, offers an interface in English or simplified Chinese.

The opening screen shows the value of the Dow Jones Industrial Average, the Nasdaq, and the Standard & Poor’s 500. A recent news headline is displayed; you can access additional information by tapping the More button. The app’s Menu button brings up six choices that give you access to your accounts, open positions, balances, order status, a market overview and your settings. Hitting the Trade button summons a stock-order entry screen; you can switch to options with another tap.

Once you enter a ticker symbol or pick an item from your positions, the app displays a real-time quote. You have to scroll down to place the order, but then you’re shown a summary of the order, including the total cost—but not including the commission to be charged, which is $6.95 for stock orders. If you want to close a current position, you have to remember the quantity you own.

Though it’s easy to use, there are some issues with this new Firstrade app. We ran into problems while placing options orders. The app crashed several times, and to get back in, we had to enter the user ID, password, and PIN repeatedly. Graphs are accessed from a stock-quote page, and only go back as far as six months. Finally, there’s no access to watchlists for keeping tabs on quotes of favorite stocks, and the ability to do any kind of research is extremely limited.

Overall we found this to be an adequate first-time app, but one that has lots of room to improve.

Schwab (schwab.com) has released an elegant and surprisingly deep iPhone app. You can trade stocks, options and mutual funds, and get real-time quotes on both your positions and your watchlist. Options quotes show both calls and puts on the same screen, which is a little busy on an iPhone, but looks great on an iPad, where it’s also available.

Account information is displayed on a screen that lets you choose from current balances, open positions or transaction history. If you have multiple Schwab accounts, you can flip from one to another easily.

Order entry is very simple; if you want to close an existing position, you can have the order ticket prefilled with the correct quantity. Graphs are limited to current-day price movements, though. It would be helpful to be able to view additional history.

Schwab’s “On Investing” on the iPad is an excellent magazine-reading experience that takes full advantage of the device’s capabilities. You can flip from one article to the next by swiping from right to left, and then read the chosen article by scrolling down. The display is crisp and looks exactly like the magazine. If you’ve got an iPad, download this free application and check it out. The Winter 2010 edition includes articles about tax-efficient investing, the charitable activities of an array of Schwab customers, and a Q&A about investing in exchange-traded funds.

With Fidelity’s (fidelity.com) new Android app, investors can access real-time market data, streaming news headlines, full news stories with graphical content, real-time quotes, interactive charting and links to the firm’s Twitter and Facebook pages. These features also are available on its iPhone and iPad apps. Clients who log in can see details of all their personal and work-related Fidelity accounts. They can also launch a prepopulated trade ticket from several locations within the app, including the quotes and portfolio-positions screens, watchlists and in news stories where a stock symbol is highlighted.

LIGHTSPEED TRADING, A broker that courts high-frequency traders, recently integrated a new tool from the online research outfit Recognia into its platform. The two firms collaborated on the Intraday Trader, and Lightspeed (lightspeed.com) is the first broker to offer it to clients.

Very active traders typically focus on just a handful of carefully selected stocks, but Intraday Trader is designed to keep tabs on a larger universe of shares that also meet your criteria. It aims to let you home in on such opportunities faster by automatically recognizing the price patterns and many other technical factors that need to exist to pull off a successful trade. It then alerts you to them.

To get started, you create a custom watchlist by cutting and pasting stock symbols into the application, or picking from a predefined list of symbols such as Large Cap or DJ Industrials. There are also lists available that change daily, such as Volume Leaders Daily by Exchange, or Worst Rated by Quant Rating.

Once you have a watchlist, you go to the Event Setup Library, which is essentially a repository of preconditions that you want in place before you make a specific trade. For example, you might want to hunt for stocks approaching a so-called head-and-shoulders formation, usually a tip-off the price is going to fall. You can sort them by category (bars, candlesticks, oscillators, etc.) or patterns (bearish, bullish, etc.) Recognia (recognia.com) has built quite a few into the application, but you can also create your own.

After you select the criteria you want, name them and define whether they comprise a long- or short-term strategy. At this point, you can tell Intraday Trader to scan the watchlist for the events you’ve selected.

Click “On My Radar,” and stocks that fit your trading criteria will be displayed at 15-minute intervals. The Opportunities link will show the time the trigger went off, the symbol, the exchange, the price that hit the trigger and an expected target price.

Each strategy has a Commentary link that helps those just getting started with technical analysis. It can expand a chart, then provide commentary on the data that defined the pattern. For newcomers or those who want to understand why a particular stock’s price pattern triggered an alert, the commentary is very helpful.

AS WE DRAW CLOSER TO Barron’s 2011 online-brokerage review in March, we’re interested in hearing how your trading habits have changed in the last couple of years. What features are important to you now? Are you part of the growth in futures, foreign currency or ETF markets? Do you have any concerns about the new cost-basis regulations from the Internal Revenue Service? What broker price structure works best for you? Let us know your thoughts at electronicinvestor@yahoo.com .

Published in Barron’s, January 3, 2011. 

Friday, December 24, 2010

A Peek at Schwab's New Trading Site

The giant broker is about to unveil an updated site for active traders. So how is it?

With close to eight million brokerage clients and $1.5 trillion in total customer assets, Charles Schwab is a huge online brokerage. Smaller firms can be nimbler, and focus on a niche, updating their electronic platforms almost constantly. It’s not that easy at Schwab, which has to meet a wide range of electronic-client needs. That’s why the Electronic Investor was pleased to get an exclusive sneak peek at the firm’s update, which should be available to its clients shortly.

The new trading platform is called StreetSmart Edge. Kelli Keough, vice president of Schwab’s Active Investor group, says the new setup will be the foundation of the firm’s continuing investment in this area. The application was created in-house using Windows Presentation Foundation, a programming model for developers. Once it’s released, it can be downloaded from the Schwab Website (http://www.schwab.com)—the beta version we tested was 28 megabytes—that runs on personal computes powered by Windows XP or newer operating systems, and Macs with the appropriate conversion software.

StreetSmart Edge carries over many of the real-time tools built into Street-Smart Pro, Schwab’s long-time frequent- trader site, but is a much more elegant and approachable design. Like many newer frequent-trader applications, the program allows you to build your own lineup of tools. There are several layouts built in, but it’s simple to move the windows around, spread them across multiple monitors, and customize the view extensively. The gamelike feel of the previous version is gone, replaced by one that’s all business. Tools are more accessible, and you aren’t dumped into a browser for tasks such as checking balances or realized gains or losses.

An application for frequent traders has to have real-time data available so that they can see exactly what’s going on in the market and what’s happening to their own portfolios. It also requires an order ticket that can be accessed from anywhere, allowing you to place orders no matter which tools you’re using. Street-Smart Edge fulfills these needs with a bar at the top of the screen displaying current balances (which can be quickly hidden if necessary), plus an order ticket built into the Symbol Hub, one of the key components of the platform.

The Symbol Hub displays a customizable chart of prices and volumes for specific stocks, Level II quotes indicating the depth of the market at various bid and offer prices and current news for the ticker symbol you’ve chosen. You can switch tickers quickly from a watch list or your open positions. The platform currently allows you to trade stocks and exchange-traded funds and options; Schwab plans to add a Web browser tool to the program next year that will link to an upcoming futures-trading application.

If you’re viewing a particular ticker, say Apple (ticker: AAPL), and you have a position open, you’ll see a small tile with a P on it. If you have an order open, you’ll see a small O. These little bits of information are very helpful for frequent traders.

Erik Cottrell, director of product management and business development for Schwab’s Active Investor unit, says the aim is consistency throughout the application, so that no matter which window you have open, the commands work the same. For instance, clicking on an “Actions” button opens a menu, and clicking on the down arrow expands the line of data (such as an options chain) that you’re looking at.

The whole charting function is a big improvement over StreetSmart Pro. You can view any range of dates using the slider bar at the bottom of the chart, and overlay the charts with a wide variety of technical tools and trend lines. One new feature we find extremely useful is the ability to extend a trend line into the future.

There are built-in screeners that help you select the stocks and options meeting your trading criteria; however, they were limited in the beta test that we used. You will be able to save the output of a screen to a watch list, and scroll through those symbols in the Symbol Hub for further review.

Options traders will be able to look at either basic or theoretical options chains, and can flip between the two with a mouse click. Adjustments to a stock, like, say, the recent spinoff of AOL (AOL) from Time Warner (TWX) would be displayed in advance. All expire dates, including weekly and quarterly options, are also available.

The order-entry ticket lets you flip between stock/ETF selections to options and contingent orders. We entered a variety of orders, from simple exchange-traded fund trades to covered calls to four-legged spreads, and found the order-entry screen informative. When we made mistakes on purpose to test it out, it flagged them immediately.

Certain tools, including Recognia, which lets you do extensive technical analysis and back-testing of trading strategies, will be available via a built-in browser once the platform goes live. We weren’t able to test that capability in the beta form.

Schwab is clearly on the right development track, although it’s still in its toddler stage. We’ll be interested in seeing how it looks as the firm continues to add to its capabilities. It’s not a flashy, constant light parade, like thinkorswim’s applications. However, it compares favorably in ease of use to Interactive Brokers and TradeStation platforms. Certain functions—like futures trading, once it’s available—will happen in an integrated browser window, rather than in Street-Smart Edge, which I think is a drawback.

I would like to see some of the features in StreetSmart Edge, especially the enhanced charting and customizable real-time portfolio analysis, find their way into Schwab’s Web platform in the not-too-distant future.

AS WE DRAW CLOSER TO Barron’s 2011 online-brokerage review in March (our 16th annual update), we’re interested in hearing how your trading habits have changed in the last couple of years. What features are important to you now? Are you part of the growth in futures, foreign currency or exchange-traded fund markets? Do you have any concerns about the new cost-basis regulations from the Internal Revenue Service? What broker price structure works best for you? Let us know your thoughts at electronicinvestor@yahoo.com .

Published in Barron’s, December 20, 2010. 

Saturday, December 04, 2010

New IRS Rules for 2011

After years of talk, the Internal Revenue Service recently took some action. It released its final cost-basis regulations that will go into effect on New Year’s Day.

Under the current system, your broker reports the total proceeds from sales of securities to the IRS, but you are responsible for calculating the cost basis; any gains are subject to taxation. Now, in a bid to avoid creative accounting by investors, brokers will report the cost basis as well as the total proceeds to the IRS.

The first phase of the regulations covers stocks purchased after Jan. 1, 2011. For 2012, brokers will have to report similar information about mutual-fund sales and, in 2013, the program will be expanded to options and fixed-income. Current rules will apply to purchases prior to Jan. 1.

Several firms have been working to provide brokers with software to help them manage the complexities of cost-basis reporting. Scivantage (http://www.scivantage.com), publisher of Maxit, and Wolters-Kluwer, publisher of GainsKeeper (http://www.gainskeeper.com), both offer brokerage firms a suite of back-office solutions.

Joe Stensland, Scivantage’s senior vice president of product management and marketing, believes that the new regulations offer brokers the chance to offer an added client service. “They can’t avoid supporting cost-basis reporting any more; once you consider the tax impact of a transaction on an account, it gives you another bit of customer service you can provide,” he says.

Scivantage recently launched a portfolio rebalancing module aimed at financial advisors, who can use it to monitor client assets for so-called portfolio drift, or unintended shift in its asset allocations away from its targets. The module, installed in the Scivantage Professional system, will use some of the same data on securities purchases and sales that’s needed to generate the cost-basis figures.

Stensland says Scivantage will add this module to its self-directed platform in mid-2011, making it available to online brokers who have its tax accounting and portfolio management software, Maxit. He notes, “The focus of a lot of the online brokerage firms has been on trading, but as an increasing number of investors move their nest egg to self-directed accounts, this is one of the services they’ll have to have.”

We’ve been keeping an eye on the capital-gains reporting capabilities of online brokers for the past 15 years, and see these new regulations as a terrific opportunity. Uncle Sam, in trying to chase down revenue that may have previously escaped his grasp, is about to implement regulations that will unintentionally provide investors with better portfolio management tools. Go figure.

IN ANOTHER SIGN OF HOW hot precious metals are, E*Trade (http://www.etrade.com) added the NYSE Liffe U.S. 33.2-ounce minisize gold and 1,000-ounce minisize silver contracts to its futures-trading offerings. E*Trade’s customers can trade more than 200 products spanning agricultural commodities, currencies, energy, indexes, and metals. The firm already handles 100-ounce gold futures, 1,000-ounce minisize and 5,000-ounce silver futures as well as options on gold and silver futures.

E*Trade’s futures customers use a separate platform, TT_Trader, which allows access to every major futures exchange. The platform features customizable layouts, one-click order entry, and multiple-order types to manage risk (such as trailing stops). Transaction fees are $2.99 per contract (plus exchange fees, which typically add 2 to 10 cents to the commission), though for the first 90 days after opening a futures account, E*Trade charges 99 cents per contract.

The online broker has added futures education topics to its Investor Education Days; the first, featuring NYSE Euronext product experts, will be held Saturday, Dec. 11 in Philadelphia.

AND IT ISN’T JUST PRECIOUS METALS, as futures trading generally has been on the rise this year. To help you along, optionsXpress (http://www.optionsxpress.com) recently added Chart Patterns to its futures platform. This function helps find and interpret key technical events in the markets, to suggest where prices may be headed and how long they may take to get there. This feature has been used by stock and options traders at optionsXpress for several years. It lets you select several technical or fundamental indicators that can narrow down your universe of investing possibilities.

Published in Barron’s, December 6, 2010. 

Saturday, November 20, 2010

Online Brokers Eye One Another

IS ANOTHER WAVE OF broker consolidations rolling toward shore? In late October, Lightspeed Financial (lightspeed.com) completed its acquisition of Terra Nova Financial, bringing its active-trading client base to over 8,500 accounts. That doesn’t sound like much, but those accounts are trading at a very rapid pace—over 220 million equity shares a day.

Rumors have come and gone for years about a link between E*Trade (etrade.com) and TD Ameritrade (tdameritrade.com). Most recently, reports that Charles Schwab (schwab.com) is an E*Trade suitor generated a bump in E*Trade’s stock price. The two firms declined to comment. With trading off earlier in the year, there’s bound to be more pressure to acquire.

A Securities and Exchange Commission filing in early November detailed an investment made by Thomas Peterffy, CEO of Interactive (interactivebrokers.com) in rival TradeStation (tradestation.com). Peterffy purchased nearly 2.6 million shares of TradeStation stock, or 6.3% of the outstanding shares.

To me, this appears to be an unlikely marriage. Though both Interactive Brokers and TradeStation appeal to active traders, their platforms are extremely different. TradeStation, which recently launched version 9.0 of its platform ("What’s New at Online Brokers?” Oct. 30), is designed for traders who want to build their own trading systems based on backtesting of data. Interactive Brokers is clearly aimed at traders interested in minimizing their costs; their platform isn’t as pretty as TradeStation’s.

There are similarities, though. Both firms have extensive connections to international markets, and both have very efficient order-routing technology as well as the ability to construct extremely complex orders. Both platforms are downloadable software programs, as opposed to Websites where you sign in. Both companies are run by people I consider market visionaries, though their visions differ considerably.

Does this stock purchase herald a hostile takeover? Neither Interactive Brokers nor TradeStation would comment. Peterffy’s filing says the shares were bought for “investment purposes.” The filing also says, once the legalese is translated to English, that Peterffy reserves the right to consider strategic alternatives with TradeStation and other parties. We will keep you up to date.

FIDELITY INVESTMENTS (fidelity.com) conducted a poll in late September that shows that approximately one-third of its actively trading customers are optimistic about the domestic markets, believing the S&P 500 will gain another 100 points, or 8%,by year end. About half expect the index to remain stable.

“This is our sixth poll of active investors in the past 18 months, and during that time they have been bullish in their market outlook, and the market has generally met their expectations,” says James C. Burton, president of Fidelity’s retail brokerage unit. “This most recent poll finds active investors even more positive than they have been in the past; from expectations of higher personal returns to a renewed confidence in equities, they are re-engaged and repositioning their portfolios accordingly.”

Fidelity’s retail brokerage clients have increased their new investments into individual equities 14% year-over-year through September. Options trading at Fidelity increased 11% in that time.

Owing to increased interest in tangible assets, Fidelity recently rolled out a new precious-metals investment page, at http://www.fidelity.com/metals. The page includes information about precious-metals trading opportunities, direct telephone access to Fidelity precious-metal specialists and storage and insurance options.

I’VE DOWNLOADED A COUPLE of enjoyable iPad apps recently, including Thomson Reuters MarketBoard 1.3 (free) and StockWatch–iPad Edition ($5.99).

StockWatch has had an iPhone version since 2008; in early November it published an iPad-specific version. You can sync your watch lists and portfolios between devices, and track an unlimited number of stocks, bonds, mutual funds, futures and options. It even lets you track tax lots and add notes.

I like the full-screen technical charting capability and the news feeds. My only gripe is that the data feed comes from Yahoo Finance, so it’s delayed by 15 minutes. If there was a way to get real-time data into this app, it would be even more useful.

Thomson Reuters MarketBoard is especially useful for subscribers to the Thomson ONE service, but even if you aren’t don’t, it lets you pick up news and SEC filings on the companies you want to follow. The display is crisp and nicely laid out. Well worth picking up, especially since it’s free.

Published in Barron’s, November 15, 2010. 

Saturday, November 06, 2010

What's New at Online Brokers?

Defying the recent slump in stock trading, TradeStation and optionsXpress launch upgraded systems.

STOCK-TRADING VOLUME may have dropped in the second and third quarters, but that hasn’t prevented online brokers like TradeStation and optionsXpress from upgrading their offerings.

TradeStation (tradestation.com) recently gave us a peek at its updated TradeStation 9.0, which includes a new look and feel for the program. This brokerage firm is aimed at high-volume, professional traders who want to build their own systems, and take advantage of the historical database available for testing strategies. According to Janette Perez, vice president of strategic relations, many of the firm’s customers feel that they are competing with algorithmic and “black box” traders for profits, and therefore must be able to react quickly to the market. Perez says, “This release puts us far ahead in differentiating TradeStation from the rest of the pack.” Barron’s gave TradeStation four of a possible five stars in its 2010 ranking of the Best Online Brokers ("Newest Trading Play,” March 15).

Version 9.0’s opening screen features redesigned icons and links that take you directly to help and customer support. The help functionality was considerably less obvious in previous versions. There is also a “Quick Start” wizard that helps new customers figure out how to optimize the busy TradeStation environment.

The major strength of the TradeStation (ticker: TRAD) platform is the ability to build and test trading strategies–to create your own “black box.” Traders can monitor market depth and be alerted, or generate a trade, when a rule or trigger is met. The platform can perform risk assessments on open positions and execute transactions for you during fast upturns or downturns.

The upgrade succeeds in making it easier to find some of the platform’s tools, and expands its data analysis range to include market depth, among other things. EasyLanguage, which customers use to develop their trading systems, was extended in the new version, and the firm is hosting the TradeStation 9.0 Developer Challenge, a competition designed to recognize independently developed analysis techniques. EasyLanguage provides the building blocks for customers and developers to automate and test strategies in the equities, options, futures and foreign-exchange markets.

Perez says that the Plantation, Fla.-based firm has held three conferences for developers, who are writing add-ons to the platform that traders can utilize. More than 400 developers have more than 550 products available, such as trading algorithms and charting enhancements, says Perez.

This is a downloadable application that you install on each computer you’ll use for trading. It only runs on Windows operating systems, and a high-speed broadband connection to the Internet is highly recommended. Multiple monitors let you keep track of several different TradeStation functions simultaneously.

Casual traders and buy-and-hold investors shouldn’t consider opening a TradeStation account. There is just too much technology, and you have to pay for it if you don’t trade at a relatively high volume. The platform fee is $99.95 per month unless you trade a minimum of 5,000 shares of stock, 50 options contracts, 10 round-turn foreign-exchange lots or 10 round-turn futures or futures-options contracts. If you keep a $1 million balance, regardless of how much trading you do, the platform fee is waived.

The commission structure is pretty complicated; for equities, you can choose between a flat-fee per trade that ranges from $6.99 to $9.99, or pay a per-share fee of one cent for the first 500 shares and 0.6 cent for every share after that. The orders are routed differently depending on which commission structure you select. (Details are at http://www.tradestation.com/brokerage/commissions.shtm.)

The firm is rebating up to $500 of commissions for trades placed this year in new accounts opened and funded by Nov. 15.

OPTIONSXPRESS (optionsxpress.com) has added tab and grid views to its Streaming Charts functionality, which let you monitor multiple graphs simultaneously. If you choose “Tab,” then each ticker symbol on your watch list gets loaded into a full-size chart; to move between charts, you click on the ticker symbol in the tab. If you choose “Grid,” up to 16 charts per page can be displayed.

Streaming Charts can be set up for equities, options or futures. The charts update in real-time, and all associated technical studies are also updated. You can detach a chart from the main page, which is a function that is greatly enhanced by having two monitors–or more. Over 100 customizable studies can be added on charts, and the resulting charts can be saved or shared.

Streaming Charts is part of an upgrade to the entire site that also includes an optionsXpress (OXPS) extension for Google Chrome. The upgrade includes the integration of “Greeks” into the trade and probability calculator that helps traders figure desired entry and exit points faster. These are all features that help options traders make better decisions.

A FOREIGN FACEBOOK: Currensee (http://www.currensee.com) enables foreign-exchange traders to discuss their trades and monitor each other’s successes (and failures). Launched in fall 2009, Currensee says that traders from over 130 countries have linked their live brokerage accounts with one of more than 100 brokers supported by the platform. Members of this social network can see one another’s actual trades and share strategies in real time. The site also generates a variety of social indicators based on aggregated data to help figure out what does and doesn’t work.

The most recent addition to the site is the Currensee Trade Leaders Program, an automated service that enables investors to follow and, if they like, execute the trades put on by those rated most successful. The leaders are chosen from the more than 7,000 current members of the network, and are screened for historical performance, risk management and returns compared with the S&P 500. Investors can choose to track one or more leaders, and either mirror their trades on their own or automatically place the trades through the platform. Currensee assesses each Trade Leader’s background, controls and skills prior to giving them the designation.

You can view community sentiment and trading volume for a wide range of trading pairs. Your “Trading Friends’” open and closed positions are displayed on your positions table. It’s an interesting take on a type of trading that appears to be gaining in popularity.

Published in Barron’s, November 1, 2010. 

Friday, October 22, 2010

TD Ameritrade Launches Free ETFs

The online brokerage giant joins the commission-cutting fray with the largest assortment of funds yet. Also, a Website upgrade from Firstrade.

FINALLY JOINING THE free-trade fray, TD Ameritrade has begun to allow customers to trade about 100 exchange-traded funds without paying commissions. Other big-name brokers rolled out free ETF trades earlier this year, but TD Ameritrade (ticker: AMTD) is offering significantly more funds. The firm didn’t, however, couple the free ETF trades with a general cut in commissions. 

There are other catches, mostly to keep frequent traders from overwhelming the system. You have to hold the ETF for at least 30 days to get the commission waived; otherwise, it’s the usual $9.99 fee for a stock or ETF transaction. As CEO Fred Tomczyk says, “We haven’t lost our minds here.”

The free ETFs are part of the rollout of TD Ameritrade’s (http://www.tdameritrade.com) ETF Market Center, many of whose functions can be used by non-customers. The center is modeled on a similar product for mutual funds. It includes lists of “premier” funds, as well as screeners and other tools. To see the screener’s results, though, you must log into a TD Ameritrade account.

Tomczyk says that TD Ameritrade began participating in the exchange-traded fund market in 2004, when its Amerivest online advisory unit focused on ETF strategies.

The funds that can be traded commission-free were selected by an investment consulting unit of Morningstar and include ETFs from iShares, Vanguard, State Street, PowerShares, and others. In comparison, Schwab’s free ETFs include only 11 of its own funds. Similarly, Vanguard offers 62 Vanguard ETFs for free.

Though late to the table, TD Ameritrade is serving up heftier portions than its rivals. The next course could be interesting.

ALSO A BIT OVERDUE, Firstrade (http://www.firstrade.com) has redesigned its Website, which, in our view, had gotten tired in recent years. We were also disappointed that the data displayed were delayed; real-time info is important for making trading decisions.

All that is due to change on Oct. 20, when Firstrade launches an update that highlights speed, user interface, flexibility and customization. We were shown the new platform in early October while it was still in a beta test in a closed environment. It’s a straight browser-based trading application; no need to download applications or launch tools in a separate window.

The landing page you see when you log in is divided into two columns. The left side focuses on the investor’s account and has a drop-down selector so you can switch between accounts quickly. The right column focuses on markets—showing news, quotes and graphs. The columns can be collapsed or expanded, and the various boxes displaying data can be moved around.

At the bottom of every page is a simple order-entry ticket for stocks or single-leg options. On the far right is a box where you can see real-time positions, balances, open orders and executions.

“We wanted to make it convenient for customers to not only place orders, but be able to get quotes and research,” says the Firstrade vice president of business development, C.S. Hsia.

You can customize the columns displayed on the positions page. As you choose column headers and move them around, you can see a preview of the resulting report. The site also features newly designed stock, mutual-fund and ETF screeners.

Firstrade also has added the ability to place conditional orders, such as one-triggers-another and one-cancels-another. Although these features have been available on other sites for years, Hsia says that Firstrade’s conditional orders are stored in its own servers, which means they can be checked with every tick. Some broker sites review them only every minute, which can lead to trades that don’t fit your criteria.

One area still in need of some help is options trading, although the updated options chains are nicely displayed. The order ticket allows you to place only a stock order or a one- or two-legged options order, so the more complicated spreads have to be entered as a series of orders. This is a pretty major shortcoming.

The new platform does take a step into the community area. When an order is executed, you can tweet it or post it to Facebook. You can set your sharing posts to hide the quantity and/or execution price, and you can add a note that includes your rationale. On Facebook, Firstrade shows how many people have shared trades that day, and it can show your friends’ activity.

Commissions remain the same—$6.95 for a stock transaction and $6.95, plus 75 cents per contract for options.

Firstrade has taken a big step in the right direction, but there’s still a ways to go. 

Published in Barron’s, October 18, 2010. 

Saturday, October 09, 2010

Jumping on the iPad Bandwagon

As the number of users swells, the list of trading applications is also starting to grow and improve. E*Trade, Fidelity, Nasdaq get on board.

IPAD USERS, MORE THAN 7 MILLION strong, are doing everything on the devices—from playing “Plants vs. Zombies” to shopping for heavy-duty trucks. Based on our e-mail, quite a few Barron’s readers now own an iPad—a number that recently expanded to include yours truly. I made my purchase in early September, and have spent several weeks finding finance and trading-related applications. Here are some of my early findings. (Almost all of the apps are available at the App Store or via iTunes.)

Lots of the current apps are iPhone programs that also run on the iPad. They can be blown up to use the whole screen by tapping the “2x” button at the bottom of the display; otherwise they appear in the center of the screen in a box that’s the same size as an iPhone. Most iPhone apps that are expanded to fit the iPad screen this way don’t have very good resolution; the display looks ragged around the edges. That said, there are lots of worthwhile programs to consider.

ONLINE BROKERS WERE QUICK to jump on the mobile bandwagon. The success of the iPhone and iPad especially have prompted new apps, including those you download for free to manage your online account.

E*Trade (http://www.etrade.com) was among the first with an iPad-specific application, launched shortly after the device started shipping in April. Mobile Pro for iPad 1.1 is a nice step up from the firm’s iPhone app, and takes advantage of the additional real estate. You can select from a variety of functions; real-time charting and quotes can be displayed, along with news and CNBC video. The charting is limited to line charts, so this isn’t the app for a lot of technical analysis, but it’s possible to see your account balances and place trades.

Fidelity’s iPad app (http://www.fidelity.com) is not as flashy as E*Trade’s, but provides real-time access to portfolio values. The charting functionality is also on the light side, and you won’t find any video feeds. It’s a sturdy app that gives you mobile access to your Fidelity account with little glitter or glitz.

Although it won’t be out until November, TD Ameritrade’s (http://www.tdameritrade.com) iPad app will allow clients to trade stocks, futures, forex and options—without any of the typical mobile-device constraints like screen size and keyboard usability, says a spokesman.

Nasdaq OMX’s free app QFolio HD for iPad lets you view real-time streaming quotes and line charts for U.S. and Nordic stocks. (Prior to its acquisition by the U.S.’s Nasdaq in 2007, OMX was the Nordic stock exchange.) You can create a portfolio manually and get real-time profit and loss calculations. Charting is relatively basic, though you can add moving averages as overlays. This app has a link to the StockTwits Twitter stream.

Bloomberg for iPad, also free, lets you look at a variety of markets, including bonds, currencies, commodities, and indices. You can also check the action on a variety of foreign bourses, and create your own watchlist. Each exchange’s page includes a real-time chart, a summary of the performance of the various industries that are listed on the exchange, and the day’s movers.

If you create your own watchlist, called “My Stocks” in the Bloomberg app, a tap on the icon brings up your list and shows your P&L (if you’ve entered your trade data). You also get a small intra-day price chart as well as a visual indicator in green or red that shows whether the stock is up or down for the day. Tapping on the company name expands the display to full screen, where you can adjust the date range for the stock. This charting application does not let you stretch or contract the display, however.

An interesting charting application called iTraderPro was just released by Black Ops Entertainment. CEO John Botti explains that the company is traditionally a video-game publisher, but his interest in trading prompted a new 3D charting package. It will set you back $24.99, but Botti says, “People who pay the fee will save way more than that in the market by watching our buy and sell signals. We want to bring hedge-fund analysis to the retail investor.”

You can stack up as many as four stocks simultaneously, and shift your view with a finger. The app has several technical studies built in that will overlay the 3D chart, including Bollinger bands and moving averages. The app has buy and sell signals that you can choose to display on the screen, and you can also set price targets and get e-mail alerts. The initial release displays charts with end-of-day pricing, but Botti says two additional apps are coming in the near future. One will let you analyze intra-day prices, and the other will focus on options trading.

There are literally dozens more iPad apps worth mentioning, and we’ll keep you updated. If you have a favorite iPad application that you use to help you manage your portfolio or generate trading ideas, contact us at electronicinvestor@yahoo.com
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Follow-up:  With one exception (a rather nasty rant that accused me of being an Apple shill, and suggested that I “rot in hell” for telling people to buy an iPad, which I do not believe was part of the story), every email (several dozen) I received in response to this piece asked why there isn’t a Barron’s iPad app available yet.  What I was hoping to find from readers was what apps they had that they found useful. 

My editor at Barron’s says an iPad app is in the works, for those of you who are wondering. 

Published in Barron’s, October 4, 2010. 

Saturday, September 25, 2010

Futures Are the New Options

Online brokers are pushing further into futures trading—and taking retail investors with them.

JUST PAST THE TURN OF the millennium, retail investors began to trade options using tools and platforms from online brokers. It caught on. More recently, a few brokers introduced futures trading to the small investor. Now nearly half of the firms in Barron’s 2010 review of online brokers allow futures trading. There’s more to come.

TD Ameritrade (http://www.tdameritrade.com) last month launched futures and spot foreign-exchange trading through its thinkorswim platform. And trademonster (http://www.trademonster.com), the focus of our attention this week, has just joined the fray.

“Futures as an asset class is becoming more and more accepted and recognized, understood and used, particularly by active traders,” explains trademonster CEO Wade Cooperman. “People who understand options are looking for additional vehicles for their portfolios,” he says.

Futures, which allow traders to speculate on the prices of everything from pork bellies to orange juice to currencies as well as the level of housing starts, is a highly regulated business. Because they allow more liberal use of margin, and therefore more leverage, they can be more risky. In the past, investors who wanted to trade in futures either had to open an account with a specialized broker or have multiple accounts with a single broker that offered futures as well as other types of securities. The idea was to keep futures separate, as a precaution.

Since you can be more leveraged on margin, you can generate larger profits. Conversely, you can lose more, too; trading on margin also creates interest expense for you. As TD Ameritrade’s Website cautions, “This allows for strong potential returns, but can also result in significant losses.”

ANOTHER CONSIDERATION: Commodities are not covered by Securities Investor Protection Corp. insurance, the way stocks and bonds are, should a dealer go bankrupt. All funds have to be separated from the firm’s capital, which is why most brokers require customers to open separate accounts. Trademonster’s futures trading platform requires an account unconnected to your equity account. You must also log in to a different Website, though the firm plans to integrate the platforms in the near future.

When you sign up for a futures account at trademonster you’ll see three trading platforms: a Web-based browser version, a mobile app, and a downloadable desktop software application. The latter is the group’s Lamborghini, offering real-time quotes, profit and loss calculations, and a variety of advanced-order types. The mobile version runs on the iPhone, iPod Touch, TMobile G1, MyTouch, Verizon Droid and Palm Pre.

You can register for a two-week trial of a simulator version of any of these platforms. We glanced at the Web and mobile apps, but focused on the downloadable software version. Trademonster customers have access to all the electronically traded contracts at the Chicago Mercantile Exchange; a list can be found on the firm’s Website. Trademonster’s futures platform is called T4; it was written by a third party and has been adapted to look more like the firm’s stock and options trading platform.

Commissions run $1.50 per contract for either side of a transaction, plus exchange fees and a levy of 50 cents per contract for the platform. The platform itself requires a minimum charge of $25 per month; if you generate more commissions than that, the $25 is waived. Charting and news feeds increase the platform fee to $200 per month.

A new feature, liveAction, has also joined trademonster’s stock and option platform. It’s an interesting scanner that looks over real-time options activity, including volatility metrics. Most options-oriented scanners monitor measures such as unusual activity, trading volume, or changes in premium, and are often run on delayed or overnight data.

But liveAction’s calculations are based on a couple of databases that stream live data all day long, tick by tick. The database tracks whether contracts were traded on the bid, the ask, or in between. There are dozens of volatility scans. For instance they can compare this month’s volatility to the volatility of a contract that expires two or three months from now. You can also scan for changes in premium to see what options traders believe will happen to the stock price in the future.

At present, the scans are pre-set, and you can select the one you want from a drop-down menu. The top stocks that fit the scan, up to 50, are displayed sorted on key value, but you can click on another column and change the sort order. If you click on a particular symbol, you will see information specific to that particular contract, and you can also place a trade. This new tool has been nicely integrated into the workflow of the trademonster platform. There is no added charge for liveAction.

Published in Barron’s, September 20, 2010. 

Saturday, September 11, 2010

Tool-o-rama

Online brokers use the end-of-summer trading lull to release new investing and analysis tools for their customers. This year there’s lots to choose from, and some customer-friendly pricing to boot.

THE DOG DAYS OF SUMMER mean lower trading volumes on the exchanges, and new tools from online brokers.

FIDELITY (http://www.fidelity.com) recently relaunched its Exchange-Traded Funds research toolkit. And 25 ETFs sponsored by iShares, including iShares S&P 500 (ticker: IVV), iShares Russell 1000 Growth (IWF) and iShares MSCI Emerging Markets (EEM), can be traded for free.

Jim Burton, Fidelity’s president of retail brokerage, says that the firm updated its stock-research area earlier this year, then did the same in the ETF arena. We saw a late beta version of the new ETF tools a few weeks prior to their launch last month.

Says Burton: “We are recognizing our clients’ interest in ETFs, so our strategy is to provide a full range of third-party offerings, plus offering certain trades at no commission. With this update, we’re giving them more research so they can screen and compare.”

One welcome change: the screening tool for ETFs is now identical to Fidelity’s stock-screening tool, with more than 100 criteria from which to choose. These include basic facts, such as geography, sector, market capitalization and sponsor. When you select a screening criterion, a list of the ETFs that fulfill it is displayed at the bottom of the window. ETFs that trade for free have a green check mark. If you know what criteria you’re looking for, typing in a few characters gets you a list to choose from—a real time-saver.

Another very helpful update is the ability to customize the results page and save it for future use. There are Quick Screens already set up, such as Fixed Income and Top Rated, and Fidelity has added Expert Screens, such as Dividend Generating ETFs and Large International or Global Equity ETFs. Most of the screening tools can be used even if you’re not a Fidelity customer. From Fidelity’s home page, click on ETFs on the left-hand side of the screen, then the ETF screener., but Expert Screens are available to customers only.

CHOICETRADE (http://www.choicetrade.com), a low-commission online broker, recently updated its Web-based trading application so it can run in any browser, without the need to load additional plug-ins. “Early on, we made a decision to create our new site without plug-ins,” says CEO Neville Golvala. “While there are many upsides associated with Flash applications, they do not work well with certain machines, mainly Apple products. We wanted to give online traders an alternative to Flash applications, while still offering them state-of-the-art utility, whether it be on an iPad, iPhone or standard PC.”

We struggled a bit to log into the Virtual Trading area of the ChoiceTrade Website, but finally got to the demo. One major improvement from ChoiceTrade’s old Web-based platform is a complete redesign of options research and trading. You can build a complex strategy from the options chain, and the new “Strategy Identifier” checks the trade legs you’ve chosen and identifies your strategy as you add them. This is a bit of a reversal from the way many other options-trading applications work—those have you choose a strategy and then add the appropriate legs.

Quotes are displayed in a streaming real-time format, and you can trade an unlimited number of shares of a stock for $5 per transaction. Options transactions will set you back $5, plus 55 cents per contract.

The firm has made it fairly simple to set up an account online. With a minimum of $2,000 in your account, you can use the new trading platform for free for four months. After that, you will be billed $14.95 per month for basic data, and $23.95 per month for the Pro data feed. The latter includes advanced charting and streaming data on the mobile platform.

The new platform is a big step up from ChoiceTrade’s previous, and very basic, Web-based toolkit. ChoiceTrade also offers a software-based trading platform for $29 to $79 per month.

TEXAS-BASED TRANSCEND CAPITAL recently launched an online brokerage, JunoTrade (http://www.junotrade.com). It offers $4.95 commissions per stock transaction, and $4.95, plus 95-cents-per-contract options trading. JunoTrade CEO John McMorris formerly served as chief technology officer and chief information officer of CyberTrader and ShareBuilder, respectively.

JunoTrade has two Web-based platform, JWeb and JWebPro, as well as a software-based platform called JunoTrade Pro. JWebPro is a streaming platform that offers most of the features of the downloadable platform; it’s built on Microsoft’s Silverlight technology, so it can run on Windows, Macintosh and Linux operating systems. All the trading tools focus on stock and options transactions.

There is back-testing capability built into the Pro platforms. It includes a fairly basic scripting language, allowing you to write your own trading strategy and test it. JunoTrade also has an API (applications programming interface) for those who want to write their own front-ends. JunoTrade also has an iPhone app, which you can download from the iTunes store for 99 cents. This is the first mobile app we’ve seen that incurs a charge.

The firm’s Website is a bit light on information that most investors need when deciding whether to open an account, however. Though you can locate basic stock and options commissions (click on the “Compare Pricing” tab on the main page), other fees are impossible to find.

Dan Micovic, JunoTrade’s vice president of marketing, says, “The active traders and groups like to call in and negotiate their per-share rate based on their trading volume. We can be quite accommodating.”

TRADEKING (http://www.tradeking.com), one of the first brokers to tie social networking into its trading platform, has expanded its “Trade Notes” functionality by tying it to Twitter. As of late July, TradeKing customers who generate a Trade Note and choose to connect to Twitter automatically will tweet their confirmed trades.

If you follow @TradeKing on Twitter, you can see what the firm’s customers are trading, and learn the rationale behind particular trades. Says TradeKing’s CEO, Don Montanaro: “Twitter Trade Notes only showcases clients’ actual trades that have been verified by TradeKing. This functionality underscores our commitment to providing innovative educational tools and resources to help clients expand their trading knowledge by learning from their peers’ trading successes and miscues, and the strategies behind those trades.”

Published in Barron’s, September 6, 2010. 

Saturday, August 28, 2010

New Apps With Investor Appeal

HERE’S A COLLECTION OF APPLICATIONS that I’ve recently tested and believe could help your trading, portfolio analysis, or tax reporting. Some are free, or nearly so. 

REALIZED (http://www.realized-app.com), published by New Forge Technologies, is a free (for now) Web-based application intended to help maximize your after-tax return. It bills itself as an alternative to the popular software GainsKeeper, used to import trade information onto a Schedule D for tax purposes, and there are similarities. Realized is especially useful for those with multiple brokerage accounts, allowing you to keep track of potential tax problems, such as wash sales in which you buy back shares you’ve recently sold for a loss. Depending on the timing of these transactions, among other things, there can be tax consequences if you don’t pay close attention.

To get started on Realized, all you do is create a user ID and enter your e-mail address, then click on a link to activate your account. That’s the easy part—now it gets a little bit tricky. You have a couple of methods of entering your trading history. The easiest is to go to your online brokerage account and download all your transactions in a comma-delimited (.CSV) format, in which each column of data is separated by a comma and each row starts a new line.

Almost all online brokers give you the option of creating a comma-delimited file, which you save on your computer. This is a step that can create a bit of pain if you’re not comfortable mucking about on your computer for a file, but it eliminates the need to enter your brokerage-account login information, which makes some people nervous. These files load quickly (even one that had several hundred transactions); at this point, you check over your transaction history to make sure it’s correct. You can also enter your transaction history manually, but that can introduce errors if you type the data incorrectly.

Once all the transactions from your various accounts are entered into Realized, the application creates tax lots, or records of transactions and their tax implications. By knowing the purchase date you can specify what shares to sell later on to maximize tax advantages. If you’ve fully or partially closed a particular tax lot, Realized will let you match the sale with the appropriate purchase.

One tricky bit of portfolio accounting that Realized tracks for you is corporate events, such as stock splits or reorganizations, which can change the cost basis of a particular tax lot. Realized will generate a Schedule D for you whenever you want, so you can keep an eye on your short-term and long-term capital gains as the year progresses. The program displays your largest unrealized tax losses, which you can sell to offset your capital gains, minimizing your tax payments.

The main advantage to using an application that looks at all of your brokerage activities across multiple accounts is that you may have activity in, say, your E*Trade account that generates tax consequences when you trade in the same stock in your thinkorswim account. The IRS doesn’t keep track of which brokerage handles your trading activity—your Schedule D looks at all of it together. It’s possible to sell a stock in one account that creates a wash sale when you buy it again in another account within 30 days. Realized will flag these events for you.

For now, Realized is in a late beta-test phase and there is no charge for its use. It’s worth checking out if you don’t have any other tax-management system in place.

FREESTOCKCHARTS.COM, as you might imagine, is a Website that offers (mostly) free stock charting. Published by Worden Brothers, the site also offers “almost-free” tools, including complete real-time data—the data you can see for free is from the BATS exchange platform, an alternative trading system that accounts for approximately 10% of all U.S.-based transactions. Adding NYSE or Nasdaq will run you $2.99 per exchange each month. There is a banner ad on the right side of the chart display; you can turn that off with another almost-free service for $4.99 per month. I simply move my browser window off to the right so that the ad is invisible.

This is a slick little charting application, which allows you to add a variety of technical indicators with a click. You can generate a chart and send it to others via Twitter or Facebook. One of the features that I appreciate most is the ability to look at the components of a particular index or exchange-traded fund using the site’s Watchlist function. I also like the ability to add columns to the tabular data display, such as whether a particular stock has broken through its 30-day moving average.

If you create an account, you can set up your own personal watchlists to track, and share them with your friends. Freestockcharts has its own social-networking capability, but the ability to connect with Twitter is also very useful.

THIS LAST ONE IS A BIT QUIRKY, and isn’t free, but will appeal to those interested in industrial and sector organization. Maptool X, published by Wall Street Images (wallstreetimages.com), uses old-world style maps to show the relationships between companies competing in a particular industry, and takes a stab at visually describing barriers to entry and forces of competition. This creative app can be downloaded from the iTunes App Store for $19.99.

Frankly, it took me about 20 minutes of puzzling over one particular display to figure out what it was describing, but once I got it, I had a great time checking out a variety of industries. I imagine those more experienced at playing video games will grasp the concepts more quickly. I checked it out on an iPhone; I’m sure this app would be magnificent on an iPad.

You can set up particular companies to follow, but the displays that most interested me were organized by industry. The larger companies are shown “protected” by a wall that keeps out potential entrants. If you hover over a company name, you will see some financial data (including market cap), while clicking on the company brings up recent trading data.

The displays will change depending on a firm’s market cap and its position within the industry. Maptool creates pictograms for nine industries, from basic materials to utilities with anywhere from 10-30 subindustries for each category.

These changes aren’t as dynamic as a real-time stock chart, but they will give you an idea of how a particular company fits within its industry. It’s thought-provoking at the very least. 

Published in Barron’s, August 23, 2010.