Choosing a Streaming Quote Service

What are streaming real-time quotes and how can they make you a better trader? A good streaming quote service actually offers investors much more than quotes.

In the weeks ahead, I'll evaluate some of the better online quote providers. I'll start with the low-cost services and work my way to those costing $80 or more per month. For a list of some streaming quote providers, check out Jamie Heller's Feb. 15 What Works column, and thanks to all of you who wrote to me and Jamie with additional suggestions. Please keep them coming with an email to [e-mail].

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What Are Streaming Quotes?

Real-time streaming quote services are similar to the portfolio tracking tools you find at financial Web sites like Yahoo! Finance in that they let you set up watch lists of stocks. The critical difference is this: With a streaming portfolio you don't need to hit the refresh button. The numbers update automatically. They reflect market action occurring at that very moment. Hence the term "real time." (Some streamers also have a delayed-quote option, but in my view that undermines a key benefit of streaming.)

A main attraction of streaming quote services is that they show you the bid prices, what someone is willing to pay for a stock, and the ask prices, what a seller wants for his or her shares. The bid and ask reveal the best available price at which shares may be bought or sold at that particular moment. The key words here are "best available price." Streaming quote services show you only one bid price and one ask price. That's how they differ from Level II quotes, which show not only the best bid and ask, but all the bid and ask prices that are fractionally off the best bid and ask. Instead of two prices, Level II gives you a whole list: one column for the bids, another for the asks.

The bid and ask are just one piece of the valuable information many streaming quote services provide. Other indicators may be just as important. When sizing up a streaming quote service, look for these data points:

Size of bid and ask: This is the number of shares someone is willing to buy or sell at an advertised price. The number may also be an aggregate figure of all shares in the market available for purchase or sale at that price. Size is usually expressed as a multiple of 100. So if the current bid/ask for XYZ is 15.5 (5) x 15.6 (100), that means someone is offering to buy 500 shares of XYZ at 15.5, while one or more sellers out there want to unload 10,000 shares of XYZ at 15.6. Generally, a greater number of shares indicates a near-term downward trend in the price, while an abundance of buyers usually signals an uptrend. But not always. The size being advertised can be a clever ruse. Bids and offers can be withdrawn at any moment and vanish from the screen. Likewise, sellers sometimes hold back shares so as not to put downward pressure on the price. And buyers may want more shares than they're willing to show.

Size of the last sale: This number shows how many shares changed hands as a result of the last trade. Because it represents an actual transaction, it's often a better barometer of interest in a stock than the advertised bid and ask size. For example, if several 5,000- to 10,000-share trades occur in the space of 15 minutes and the price edges upward, this may signal that an institution is bent on accumulating the stock. When the same sales result in a price drop, it means sellers are swamping potential buyers with inventory.

Time of last sale: This is the exact moment the last trade took place. When the time of the last sale updates rapidly you can bet there's a lot of interest in the stock, especially if it normally trades on light volume. Unusual volume generally signals larger-than-normal price movements to come. Conversely, if the last sale occurred five minutes ago, chances are it's a pretty sleepy day for that stock.

The tick (or trend): The tick tells you whether the last trade was up or down from the price immediately preceding it. Streaming quote providers may use arrows or plus and minus signs to represent the tick. Short-sellers , who are betting a stock will fall in price, need to know the tick because they are only permitted to short stocks on an uptick, that is, when the most recent price was greater than the price immediately preceding it. (Exchange-traded funds are exempt from the uptick rule.) A good streaming quote service will print the last three or four ticks. If the last four ticks appeared something like this, - - + +, it might indicate a short-term reversal in price to the upside. In contrast, - - - - could depict an approaching short-term free fall.

When You Really Don't Need Streaming

All these numbers, as well as the basics like dollar or percentage change, continually update before your eyes. If you have, say, 15 stocks listed on your streaming quote screen, that's a lot of blinking information to absorb. For that reason, some people prefer so-called snapshot quote screens. The quotes update in real time each time you hit the refresh button. They're a little easier on the eyes and maybe on the brain, too. The Chicago Board Options Exchange sells snapshot quotes for $7 per month. If you only glance at your watch lists a few times during the day and are not doing hyperactive trading, but want the benefits of detailed, up-to-the-second information, this is probably all you need.

Customization, Multiple Portfolios and Multiple Exchanges

If you trade frequently during the day, you need a screen that'll help you make sense of the information deluge. The better quote providers let you customize your screen. For example, if volume and tick are the things you watch most, you should be able to put those columns beside one another.

A good quote provider will also let you set up multiple watch lists. One might represent your actual portfolio -- the stocks you own. Another might be devoted to the telecom stocks you've got your eye on, still another to retailing stocks, and so forth. (See this recent Tools of the Trade column about how to use watch lists.)

Also think about the stocks you want to follow. Quote.com has a free real-time streaming portfolio, but it shows only Nasdaq stocks. Options traders will want a quote service that receives a data feed from OPRA (Options Price Routing Authority).

Ideally, you should also be able to click on a stock in one of your watch lists to receive a chart or detailed fundamental data. Make sure the charts or data fulfill your needs.

Broker Quotes vs. Independent Quotes

Some quote providers allow you to trade right from their screens. Usually this means they've partnered with one or more online brokerages. Money.net, for example, allows you to set up trades with Ameritrade and National Discount Broker. While this can be a nice feature, it's often just as easy to set up your broker's order entry as a separate window on your screen.

In fact, there's a debate among traders about whether it's better to use a quote platform that's separate from your brokerage. A brokerage-based platform, like Datek's, makes it easy to trade because you don't have to juggle from window to window. Other traders insist that brokerages and quote providers are separate specialties. Choose a broker based on the quality of its executions and whatever other broker services might be important to you, they say. Then, pick a streaming quote service with the features you want.

Reliability

And finally, a quote service is next to worthless if it continually breaks down. This can be especially common if data downloads to your screen as a Java application. Unfortunately, the problem may be your own computer. One way to find out is to run the Island ECN order book on your system. If all you see is a blank screen, check out Island's excellent Java troubleshooting page. Try the fixes it recommends and see how your computer behaves. Better still, opt for a quote provider that'll give you a free trial and use the time to test the service's reliability.

Now that you know what to look for, next week I'll look at low-cost services from Money.net, Quicken.com and MyTrack.com. If you have experiences with any of these services, please send me an email at [e-mail].