Thanks again to all of you who sent in your holiday active trader
wish lists last week. This week it's back to reality, with eight trends and developments anticipated for active traders.
1. The New World of Orders
Some traders rarely use anything but
limit orders. Others make use of more complicated orders such as
trailing stops. But there are many different kinds of orders. In the past, fancy orders were available only to institutional traders, or you'd have to phone your broker to place them. But increasingly, brokers are making complex orders available online to active traders.
Blackwood Trading, for example, allows you to send an order to
that automatically adds 1/256 to the prevailing best bid or shaves 1/256 from the best ask. You're a tiny fraction off the best price, but in a fast market that gives you a much better chance of execution.
Another Blackwood execution function lets you simultaneously send out multiple orders for the same stock at different prices. With this feature you can gather up a large quantity of shares on the expectation that the price will shortly move in your favor.
2. Better Bookkeeping
If you've been following
What Works columns, you know that active traders want portfolio tracking tools that calculate their portfolios' value minute by minute. Wouldn't it be great if you could also analyze the tax implications of your trades then turn around and use the excess cash in your portfolio to pay bills online instantly?
Little by little some brokers, as well as sites like
OnMoney, which appeared in this column
Aug. 19 and
Aug. 26, respectively, are moving in that direction. So is
FinPortfolio, a Web site that provides sophisticated portfolio planning tools. It recently signed an agreement with a company called
Yodlee that lets customers manage multiple online accounts for things like bill paying and savings, as well as investments. Yodlee markets its products through banks and online brokerages, so these tools might soon appear at online banking and brokerage sites all over the Web.
3. After Hours, but Not Prime Time
Check out the trading statistics
published on the
Web site, and you learn that after-hours trading volume is often a paltry 50 million shares per night, or about 2.5% of the volume on a 2-billion share day. Can savvy active traders snag bargains in this sea of low liquidity? Sure.
But after-hours trading was conceived of largely as a way for average investors to come home from work and play the market, a kind of thinking person's PlayStation2. Yet, low liquidity continues to scare away average investors. Don't look for an upsurge in after-hours trading anytime soon. The smart money's betting against it.
As evidence, I point to
MarketXT.com, an ECN originally conceived as an after-hours trading venue. Last year, MarketXT.com was sold to the direct access broker
Tradescape.com. The ECN is currently being repositioned as a gateway for daytraders and institutional traders.
4. Online Financial Chat Gets Visual
Sure, it's great to share your views on the market through an email discussion thread. But being able to watch a trading software display real time along with other traders while a chat room leader talks and points out, say, critical chart patterns, would be awesome. That's similar to what active trader educational sites like
Daytrading University that you can read about
here are doing now. It's only a matter of time before the $200-plus per month trading rooms operated by the top board lords adopt the same technology.
5. Direct Access Now
You don't need to be a daytrader to use a direct access broker. That was the message
received from readers during our online broker
survey this fall. Direct access brokers let customers choose where they want their orders to go, whether it's to a Nasdaq market maker or an ECN or a particular exchange. Such direct routing saves you money by helping you get inside the bid/ask spread. Look for direct access trading to go mainstream in the coming year. This month, for example, we saw
announcements about popular online brokerages
making inroads on direct access trading for their customers. It's only a matter of time before others follow suit.
6. Real-Time Stock Screens Get Real Good
Stock screens are really data-mining tools. Input a bunch of criteria that you want a stock to possess, like a low
price-to-sales ratio or a high
earnings growth rate. The screen will search through reams of market data to find a list of stocks matching your criteria.
Real-time screens, which we've talked about
before, do the same thing using, well, real-time data. They tend to focus on a stock's technical trading patterns. They might alert you to stocks that were poised to cross their
support level on high volume, for example. Used to be you needed a heavyweight $1,500-per-month institutional trading platform to use real-time stock screens. But this past year, two real-time stock screens aimed at active traders debuted on the Web.
TraderBot.com charges $40 per month.
Xigo.com offers many similar tools for free.
7. The Empire Strikes Back
If you've been reading
reporter Robert Kowalski's recent
dispatches, you know big changes are afoot for the
next year. That's when the NYSE will debut an ECN-like direct matching system that will link limit orders of buyers and sellers. An order book, similar to Nasdaq Level II, will show a list of bid and ask prices. Previously this information was known only to the NYSE specialists (exchange-sanctioned middlemen). Will the new order book lure daytraders from the Nasdaq to the Big Board? If so, will these daytraders bring Nasdaq-style volatility to blue-chip trading? Let me know your
8. Turnkey Trading Systems
Time's precious. Nobody wants to waste a day working the bugs out of a system upgrade from Windows 98 to Windows 2000 Professional. Vendors of turnkey computer systems solve that problem for you. They sell you a computer with your trading software preloaded and pretested to prevent any system-crashing conflicts between programs.
TriKinetic Technologies and
SCI have had this market largely to themselves, selling turnkey trading computers with prices ranging from $3,000 on up to $10,000 or more for a multimonitor system.
Compaq recently entered the fray with a line of Deskpro workstations aimed specifically at online traders. Check these companies out before you head to Best Buy or CompUSA for an off-the-shelf computer.
Sometimes You Get What You Wish For
In last week's
told us he wanted a way to direct his options orders to a specific exchange.
emailed this solution:
I am an avid options daytrader and it took me many months to find the right company that is set up to give instant execution and allow me to specify the exchange. The one I have had some success with over the last 10 months is Preferred Capital Markets ( PreferredTrade.com). It patches right in to my Quote.com (quote data software) and it lets me set stop and contingent orders for options. It truly is the best I've found so far.
Going to PreferredTrade.com's Web site, you learn that the online broker's order entry system lets you pull up an options chain (a list of all the contracts available at particular
strike prices and
expiration dates). The option chain will also show duplicate contracts from different exchanges. Using PreferredTrade's order entry system, you can then click right on a particular contract and set up an order.
Thanks also to those of you who wrote back to say that
InteractiveBrokers.com also allows you to route option orders to a particular exchange or automatically send an order to whatever exchange happens to be offering the best price.
Got any more holiday wishes? See any other trends on the horizon? Please let us
Happy New Year!
Mark Ingebretsen is editor-at-large with
Online Investor magazine. He has written for a wide variety of business and financial publications. Currently he holds no positions in the stocks of companies mentioned in this column. While Ingebretsen cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to