Daytrading Software Goes Mainstream

Mainstream brokers Schwab and E*Trade are starting to offer some tools that professional daytraders use.
Publish date:

Daytraders will tell you that raw cunning and nerves of steel are the key ingredients of their success. That's just macho rhetoric. Many daytraders I know are too scared to take bathroom breaks for fear they'll miss some momentary market blip. No, the true source of daytraders' prowess lies with the software they use.

Indeed, daytrading software is kind of like the monster joystick used by these ultimate video-game addicts. It's the reason they're able to fly in and out of positions in a heartbeat and make a month's wages on a one-eighth-point move.

Daytrading software packages such as

CyBerTrader and

TradeCast come with features worlds removed from the plodding execution systems most online brokerages provide. Forget about touchy-feely order-confirmation screens and the 100 free real-time quotes you receive with each new trade. With hardcore daytrading software, charts and Level II quotes (bid and offer quotes from all market makers on the system) refresh with each tick. News scrolls across the screen, sometimes minutes after it happens.

Likewise, with professional daytrading software, you can create intricate orders involving multiple stops and multiple stocks, or build in hedging positions using options or any combination of the above, for that matter. And you can fill those orders with a single keystroke -- usually through whatever electronic communications network, or ECN, happens to be offering the best price that instant. Don't even try daytrading unless your broker offers features like these. It would be like pitting your poodle against a Doberman.

Now, however, in an attempt to level the playing field somewhat, two mainstream brokerages --

Charles Schwab





-- are offering lite versions of daytrading software. True, they don't come with many of the professional packages' bells and whistles. But unlike the professional packages, they don't rent for $200 or more per month, either. (The actual cost of these software systems varies widely and usually is included in a broader package of services from daytrading brokerages.)


Schwab calls its advanced trading system


. And to use it, all you need is an account with a $10,000 balance, according to Schwab's Web site promotion. Plus, you must make at least five trades (at $29.95 each) between now and the end of March.

One of Velocity's notable features is multiple-order entry -- the ability to buy or sell several stocks with a single mouse click. Multiple-order entry might come in handy if, for example, you hear that tech stocks are beginning an afternoon rally. Buy shares of


(INTC) - Get Report



(CSCO) - Get Report



(MSFT) - Get Report

, and you could ride the wave with diversified long positions in semiconductors, networking paraphernalia and software. Of course, you can sell out just as quickly if the intraday trend reverses.

With Velocity, you can also maintain up to five different watch lists. So, you can see if tech or drug or financial stocks -- or whatever you might be watching -- are up to something, and if they are, you can act in a heartbeat.

Power E*Trade

Like Schwab's Velocity,

Power E*Trade

gives users multiple watch lists and multiple-order entry. A java application lets you view real-time streaming quotes. (Level II quotes are a free option if you make more than 75 trades per quarter.) No more hitting the refresh button each time you want a price update.

When you place an order through Power E*Trade, you can turn off the order preview screen and immediately send the trade off for execution. That seemingly simple step could save you a bundle -- not to mention a lot of frustration. If you've ever watched the market bypass your limit order while you waited for the confirmation screen to download, you know what I mean.

Power E*Trade will also save you on commissions, provided you're an active trader. Make 29 trades per quarter at $19.95 (for


and all limit orders), and subsequent trades cost $14.95 each. Trade 75 or more times per quarter, and the commission drops to $9.95.

While saving money is certainly great, my gripe about Power E*Trade is its dorky sign-up procedure. You must make 29 trades using E*Trade's regular execution system before you're upgraded to Power E*Trade. Hey people, is this some kind of exclusive club? Other online brokers such as

WebStreet Securities offer turbo-powered software, too. And you get it as soon as you open an account.

To really help dissect Velocity and Power E*Trade, I spoke with Misha Sarkovich, author of

Electronic Day Trading Made Easy

and a minority limited partner at a Sacramento, Calif., daytrading firm. His bottom line: The Schwab and E*Trade packages still won't let you compete head to head with daytrading pros. But you'll have it all over people using order-entry systems at most online brokers. And Schwab or E*Trade's software might help shave a fraction of a point here and there.

Software Limits

Still, he says, there's a limit to how powerful most Internet brokers can make their software. Here's the reason: Catering to hundreds of thousands of customers means that Internet brokers must standardize their order entry and data screens. Further, these screens are built on the brokers' servers. So even if you have a super-fast T-1 connection plugged into your home PC, you still must wait in line with all the other customers while your pages are assembled for download.

By contrast, professional daytrading software is faster because it's decentralized, Sarkovich says. The actual software resides on each trader's workstation. News, price and other data stream directly from the market in raw form via some kind of broadband connection. Charts and displays are built right on the workstation. That guarantees they'll come up a lot faster than if they were built using the online brokers' servers, and then downloaded by you as a Web page. Faster still, since serious trading workstations can employ multiple 500-megahertz processors. (Most home PCs get by on a single processor.)

Daytraders use all that power to keep lots of pages up on their screen simultaneously. Many place two or more 21-inch monitors on their desktops. Serious daytrading packages accommodate by allowing users to customize their displays -- from the color of their screens to the alerts, charting, executions, etc.

OK, so the key reason Internet brokers can't compete with heavyweight daytrading packages is that Internet brokers don't offer a complex front-end program. What's to prevent Schwab or E*Trade from developing a truly killer front end -- given that each firm has millions to spend on research and development.

I'm suggesting that in the years or maybe months ahead, mainstream brokers such as Schwab and E*Trade could be the ones offering state-of-the-art daytrading software. Think what their gargantuan R&D war chests might buy: voice-activated order fills, animated bots that explain trading strategies, artificial intelligence, a 3-D video-game-like interface and -- why not? -- a real joystick instead of a mouse!

A setup like that could turn all of us into hard-edged daytraders -- people with nerves of steel and raw cunning (people scared to leave their terminals on bathroom breaks for fear of missing out on a market blip) -- yes, ultimate video-game addicts.

Until then, Velocity and Power E*Trade hint at what's ahead.

Mark Ingebretsen is an editor-at-large with

Online Investor magazine and a consultant to a major insurance company. He has written for a wide variety of business and financial publications. While Ingebretsen cannot provide investment advice or recommendations, he welcomes your feedback at One note of disclosure: He will be assisting Misha Sarkovich as editor of his forthcoming book. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from