Mailbag: Readers Weigh In on Brokers' Active-Trader Platforms

In recent columns I've looked at six -- count 'em -- six platforms for active traders: Schwab's Velocity and Fidelity's PowerStreet Pro (check out that column here, CSFBdirect's MarketSpeed and TD Waterhouse's Select (that column is here) and Datek Direct, now being rolled out by that broker, as well as Interactive Brokers (check it out here).

Related Active Trader Columns

Review of Fidelity's Powerstreet Pro and Schwab's Velocity

Review of CSFBdirect MarketSpeed and TD Waterhouse Select

Review of Datek Direct and Interactive Brokers

Reviews are fine and all, but it's helpful to incorporate evaluations from people who use these platforms every day. So this week and next, you'll hear from readers about their experiences with these services.

First, a word about methodology. Many reader emails described horrendous foul-ups -- money missing from accounts, sell orders failing to execute even as the stock price is plummeting, account balances that can't be reconciled with trading activity. Certainly snafus like that can be costly. And they can sour your opinion of a broker. However, unless I see a pattern, the best recourse in these situations is usually for you to try to resolve the matter with the broker. Barring that, check out the resources available at the NASD's dispute resolution Web site.

This column's approach with letters is to look for patterns. If a lot of people complain about a broker's execution speed, or lack thereof -- aha! -- there's a pattern. When praise pours in about, say, a broker's phone response time, that information ought to be shared. Having said that, bear in mind that none of this is scientific.

Schwab's Velocity

Emails did pour in about Velocity. However, many readers praised the brokerage more than its active trader execution platform. "I am a daytrader who has had his hand held on some major errors that Schwab has fixed," says Greg McHugh. "The help from Schwab has more than met the costs of the commissions." Daytrading's probably not a great idea with Schwab because you'll be competing against people using much faster platforms. Greg's workaround is that he gets his charts and quotes from an independent provider.

Another trader who makes 10 to 20 trades a month also praised Schwab's handholding: "I cannot conceive of leaving Schwab for nickels and dimes, because their customer service people are truly a class act."

Several readers did praise the Velocity platform, citing its intuitive navigation and Schwab's continual tweaks and improvements. But the bulk of emails gave Velocity average marks. "I'd rate Velocity a C+," says Jeff Lyon, who makes anywhere from four to 14 trades per day. "Charts are very slow to load, and one often gets an 'unavailable now' message."

The Velocity platform is similar to full-featured daytrading software in that it resides on your hard drive. That cuts down on the information you need to download from the Web, so, in theory, it should run faster than Web-based platforms.

Gary Tate, who makes about 40 trades a month, had this to say: "Velocity is great when it's great. [It's a] disaster when it trips you up ... executing most instructions like it is practicing the hesitation waltz." Finally, another trader wrote, "I find it easier to enter multiple trades on the Web site [i.e., using Schwab's entry level platform] than on Velocity. As far as I can tell as an end user, there's no difference in how quickly the trades are made."

In reality, lots of things can slow down any trading software. Heavy trading volume can overtax a broker's servers. Web connections affect performance, too. And speeds of home PCs vary widely. Even a once-fast PC can wane over time, particularly if it's overloaded with software you've bought or downloaded. This is why you should delete all unnecessary programs from the computer you use for trading and run tuneup software such as Norton SystemWorks.

How can you tell if download speeds are consistently the fault of your broker? Check out a company called Keynote Systems, which measures the Web performance of several online brokers. (TheStreet.com carries the Keynote data in its metrics section.)

Fidelity's PowerStreet Pro

Slow speed topped the list of reader gripes about Fidelity's PowerStreet Pro, even as some praised PowerStreet Pro's other features. Unlike Velocity, PowerStreet Pro's screens download off the Web. Perhaps that's part of the problem. "PowerStreet Pro is too slow," writes one daily user. "You really need a DSL line" writes David Sakmar. Other than that, Sakmar says, "I have nothing but great things to say about the software." "It can be useful if you have a T1 connection," notes another trader. "You really need a fast network connection," still another explains.

On the plus side, several readers like PowerStreet Pro's ability to set up orders directly from the platform's streaming real-time watch list. This can be especially useful if you trade stocks in a particular sector. You can set up a real-time watch list of all the chip-making stocks, for example. When the sector leader -- let's say Intel -- makes a move, smaller companies in the group often follow suit. With a real-time watch list you can take in all the action. More important, PowerStreet Pro let's you capitalize on what you see happening by setting up the order right in the watch list.

Entering an order quickly is one thing, getting a decent fill is another. Neil Beck, who's been using PowerStreet Pro for a year, often several times daily, reports that Fidelity gives him quality fills: "I would note Fidelity's excellent executions, often bettering my limit orders and without undue delay," he says.

CSFBdirect MarketSpeed

Feedback on CSFBdirect's MarketSpeed was sparse. But Ben Taylor wrote to say he's used this platform for over a year, and he also likes the fills he receives. "I get a lot of executions at a better price than my limit order on both the sell and the buy side. It's a large enough percentage that it is noticeable."

Recall that a limit order will execute at a price equal to or better than the price specified in the order. Getting a better price -- some refer to it as price improvement -- can occur for a variety of reasons. Here's one way it happens fairly often: You place a limit buy order for 1,000 xyz at 10 1/16. The Nasdaq market maker receives your order from your broker. He looks at, say, the Bloomberg Tradebook ECN and spots an opportunity to buy 5,000 shares at 10. The market maker only needs 4,000 shares for his inventory, so he pairs your order for 1,000 shares with his own. Result: You get 1/16 of a point off your limit price. It doesn't happen all the time, but it does happen.

A common way traders get better prices is through their broker's own trading desk. The trading desk essentially functions as a mini stock market, where traders buy and sell shares among the firm's clients and the market, so variations of the above scenario can occur. Not all brokers operate their own trading desks. The larger ones do, and, as a rule, direct-access brokers don't because they let their customers route the orders themselves. Brokers that do maintain trading desks are obligated to use them to get the best price for their customers. Needless to say, some do a better job than others. If you've found a broker that consistently gets you better-than-expected limit fills -- keep 'em.

What's Ahead?

First, please join me and my colleague, Jamie Heller, for an online chat about selecting an online broker. It's here on TSC Tuesday, Feb. 13, at 5 p.m. ET.

For the Tools of the Trade column, next week we'll look at what readers said about TD Waterhouse, Interactive Brokers and Datek Direct. Then, after turning to a few other topics, including streaming quote services and options, I'll eventually continue this series. I'll look at Power E*Trade and test platforms from daytrading brokerages, including Terra Nova Trading, TradeCast, Tradescape.com and CyBerCorp.com. Rather than look at their full-fledged daytrading programs with a mind-numbing array of screens, I'll focus on their easier-to-use entry-level software. How do these platforms compare with the six I've already talked about? Your experiences can help others (and me!) figure that out. So please drop me an email at [e-mail].