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Volatile markets and the electronic tools to exploit them: What more can an online trader ask for?
Today, it's possible to buy Swiss stocks or sell Japanese shares from your desktop; you can also go long oil, short a silver contract, trade a butterfly option on the S&P 500 Index ($INX) or employ computer-generated algorithms to jump from stock to stock -- all with the assurance of credible market prices and the confidence bred by customized research and analysis. And you can do it at a fraction of what it cost a few years ago.
In recent months, banking behemoths such as Bank of America and Wells Fargo have offered free online trading to any customer who meets their balance threshold, while newcomers such as OptionsHouse and TradeKing continue to chip away at commissions.
Deep, diverse product lines and declining prices highlight the annual Barron's survey of the best online and software-based brokers. New services and tools catering to futures, options and international investors are proliferating. Meanwhile, the average commission on a 500-share stock trade at the 29 brokerage firms we reviewed this year was $6.35, down 23% from the average of $8.25 a year ago. Costs for trading options have declined similarly.
With so many interesting alternatives, how did Barron's choose? We divvied up our brokers into two camps: 14 firms that are accessible through their own proprietary software and 15 others that you reach through Web browsers akin to those used for online banking.
Software-based systems traditionally have aimed at attracting more-frequent traders seeking speed and an information edge, while the Web has a more mainstream appeal for the sometime trader.
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Thinkorswim tops the 2007 Barron's list of software-based brokers for the second year in a row, earning four and a half out of a possible five stars.
By the thinnest of margins, a new winner emerged in the Web-based-broker category: TD Ameritrade nudged aside longtime champ optionsXpress. Both won four stars, but TD Ameritrade had slightly higher points behind those stars.
What does it take to make it to the top? Eight-year-old thinkorswim launched 12 software revisions in the past year, adding tools and making its platform more stable. "It's as close to bug-free as a program can be," says the company's president, Tom Sosnoff.
Much larger, publicly held TD Ameritrade has risen via a very different business model. The firm is the result of a merger between Ameritrade and TD Waterhouse. A frequent acquirer since the Internet bust decimated the electronic-trading business, Ameritrade wisely adopted the best parts of its purchased platforms. Its newest hybrid utilizes the terrific research capabilities of TD Waterhouse and improves upon Ameritrade's previous platform.
Barron's doesn't think commissions are the only measure of a broker's worth, even if we're not ready to agree with Sosnoff, who says of pricing, "We don't care about that anymore."
Barron's rated thinkorswim, TD Ameritrade and their brethren in eight categories, including the types of investments that can be traded online, the quality of screeners provided to help sort through stocks, options or funds, the consumer-friendliness of trading screens, overall ease of use and ability to be customized.
We then took a hard look at the types of orders a trader can enter and, for software-based brokers, delved further into trade automation, strategy creation and formulations for commissions. We also compared the rates brokers pay for customers' idle cash -- an important consideration now that short-term rates have risen. We assigned a point value ranging from zero to five for the eight criteria.
- Video: How to select a broker
We then toted up the points for each of the browser-supported brokers.
Barron's treated the software-based companies a little differently. For them, we created a weighted total by assigning varying degrees of importance to each measure, based on suggestions from more than 400 readers. For full details of our criteria, go here.
Upgrades for sophisticates
In the case of thinkorswim, many of the dozen upgrades were designed to allow its relatively sophisticated clientele to wring more out of their systems. "Our commitment (is) to apply cutting-edge technology to our trading platform and to raise our customers' understanding of complex strategies with strong customer support and educational services," Sosnoff says.In part, this has meant better order routing to market centers offering speedier execution and more price improvement. Thinkorswim has several ways to place trades. If you click on the offer in any quote display, an order-entry ticket pops up that will let you place a buy order, while a sell order comes up if you click on the bid. Either way, the ticket is filled in automatically with the stock symbol and your default transaction size.
For tech support, thinkorswim customers can use a built-in screen-capture program that takes a picture of the part of the program causing a problem and sends it to the customer-support staff via live chat.
Continued: Top software-based brokers
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