BAR: TECHNOLOGY WEEK --- The Electronic Investor -- Over There: Interactive
(Barron's 06/21 23:28:11)
Brokers provides a unique way to trade foreign stocks online ---- Edited by
Randall W. Forsyth Reviewed by Theresa W. Carey
Investing in foreign equities is a common portfolio-diversification
technique. A popular method for most individual investors is to buy an
international mutual fund or two.
Many online brokers now allow some limited trading on overseas exchanges.
For example, Charles Schwab's U.S.-based customers can buy some foreign
equities through a broker, but can't execute their orders online. Some other
brokers require customers to have a separate account for each currency.
Interactive Brokers, a direct-access broker, has come up with a way to allow
customers to make international transactions through their Trader
Workstation, using a Universal Account. And it gave Barron's an exclusive
look at its new functionality.
The idea behind a Universal Account is that an investor can trade multiple
products in multiple currencies from a single account. The accounts are
segregated behind the scenes and Interactive Brokers conforms to all
pertinent regulations, but from the view of the customer it appears to be
one account.
A customer can fund an account in any base currency, and makes all deposits
and withdrawals in that currency, such as dollars or euros. If a U.S.-based
Interactive Brokers customer opens an account with a U.S. domicile and funds
it with U.S. dollars, that customer can place trades on other exchanges
without having to set up and fund separate accounts and in those currencies.
Direct purchase of foreign securities adds currency exchange-rate
fluctuations to the investment risk. But that has proven to be beneficial to
U.S. investors this year, as the dollar has declined and the
long-underachieving euro has rallied. However, the trend has gone the other
way for dollar-based investors in Argentina and Brazil, as those countries'
currencies have cratered.
Interactive Brokers' approach to international trading is unique: in
essence, a customer makes transactions in foreign currencies through a
margin account rather than buying the foreign currency first. That means
your overseas purchases are subject to margin restrictions, and that you'll
pay interest on the margin loan, but it eliminates currency fluctuations
from the picture. (Since you're borrowing the currency, you have a liability
denominated in perhaps yen or euros. That would effectively hedge against
the exchange-rate risk in foreign-currency-denominated assets you own.)
Depending on how long you hold the equity in question, you could pay less
for the margin loan than you'd pay for a currency exchange.
You can go through a currency exchange if you want to manage your margin
balance; IB's fees for foreign exchange are not much over the interbank
rates. You cannot, however, make withdrawals in a currency other than your
base currency, so you can't use your Interactive Brokers account to trade
dollars for euros when you take that vacation in Paris.
Interactive Brokers margin rates are on the low end of the scale, as are
their commissions, some of which have been cut since our March 18 cover
story on online brokers. International investments include Australian
futures, for 7.95 Aussie dollars per contract contract; French options and
futures for 2 euros per contract, and German stocks for 0.1% of the stock
value up to 15,000 euros in value (minimum 4 euros), or 0.04% of the stock
value for the incremental value over 15,000 euros. You can also trade German
options and futures for 2 euros per contract.
IB customers can buy Swiss stocks for 0.1% of stock value (minimum 10 Swiss
francs), and options and futures for four Swiss francs per contract. You can
buy options and futures for 30 Hong Kong dollars per contract on the Hang
Seng Index. British stocks can be traded for 0.1% of their value with a
minimum commission of GBP 5, and options and futures commissions are GBP
1.70 per contract.
For U.S.-based investments, IB's commissions are about as low as you can go:
one cent per share for stock transactions, with a minimum of $1 per
transaction up to 500 shares; blocks of more than 500 shares cost 1/2 cent
per share for the incremental shares. Option commissions depend on the cost
of the option itself; options priced at more than 10 cents per contract cost
$1 per contract. Futures and options on futures are $2.40 per contract.
The online-trading screens, found at the Trader Workstation, will pitch a
fairly steep learning curve at the new customer, with a spreadsheet-style
interface. But the Trader Workstation allows you to track and trade multiple
products on a single screen -- stocks, futures, options, and options on
futures. And you can set up "hot keys" for entering transactions, which
speed you through the process of placing orders.
The trading screen always shows current margin requirements at the top, and
a click on the Executions tab flips you over to show your order status. You
can select the routing destination for your order, or pick "Smart" to get
the guaranteed best price. If you click on the asked-price field, an order
line opens up, defaulted to buy 100 shares at the posted asked price. You
can modify the order, then hit the T key to transmit the order. Canceling an
order is as simple as highlighting the line and hitting C.
Early versions of the Trader Workstation frankly weren't very impressive,
but the company continues to evolve, adding capabilities that help the
frequent trader. One nice touch is the IB Poll, accessible off their home
page, which allows anyone who stops by the site to tell IB management what
they want.
Note: If you become an Interactive Brokers customer, you'll need to do your
research elsewhere, since the site is set up for making transactions
quickly, at low cost.
---
Is direct trading of international equities an important component of your
investing strategy? Write to us at electronicinvestor@lycos.com and let us
know your concerns.
Mood of the Market
Once in a while, I encounter a device that demonstrates the ability of
technology to enhance the quality of an investor's life -- one that's
useful, inexpensive, and simplifies an otherwise tedious task.
Unfortunately, the Ambient Orb, by Ambient Devices (www.ambientdevices.com)
doesn't qualify on any of those counts.
You may have seen this $299 device advertised online, or in a catalog
designed to appeal to consumers of high-tech toys -- such as Hammacher
Schlemmer. The aim of the Ambient Orb is laudable -- to render data in a way
that the user can see at a glance, like a clock or a barometer. The orb is a
small glass ball -- capable of displaying a rainbow of colors -- that's
attached to a wireless transmitter. You can configure it to show, for
example, the change in the Nasdaq during market hours: A bright green glow
means the market is up 3%, while yellow indicates no change. The redder the
orb glows, the further the market has dropped.
So far so good -- but configuring it for something useful, like a change in
your portfolio value, means you have to subscribe to the service, shelling
out an additional fee of $5.95 per month, $52 per year, or another $299 for
a lifetime subscription.
All you can see "free" (after you've paid $299 to purchase the thing in the
first place) is the change in several stock indexes, or weather forecasts
for either New York, San Francisco or Atlanta. Getting personalized
information on an orb means spending more money. I can hear comedian Robin
Williams saying, "It's either the orb, or cocaine."
In other words: Cute idea, but entirely too expensive for what you get.
Question and Answer:
Terra Lycos recently introduced a natural-language query tool, found at
http://finance.lycos.com/search, which interprets users' questions and uses
the financial information and charting capabilities of Lycos Finance to
deliver the desired information.
The natural-language technology allows Lycos Finance users to ask questions
in a conversational style, along the lines of "How much cash does Microsoft
have?" (Answer: $38.69 billion.)
The system interprets the underlying meaning of the request, retrieves the
most pertinent content available from multiple sources on Lycos Finance, and
takes the user to an existing page -- or builds a new page just for that
user. The natural-language tool is forgiving of misspellings and of wide
variations in sentence structure -- which is more than I can say for most
search engines.
(Barron's 06/21 23:28:11)
Brokers provides a unique way to trade foreign stocks online ---- Edited by
Randall W. Forsyth Reviewed by Theresa W. Carey
Investing in foreign equities is a common portfolio-diversification
technique. A popular method for most individual investors is to buy an
international mutual fund or two.
Many online brokers now allow some limited trading on overseas exchanges.
For example, Charles Schwab's U.S.-based customers can buy some foreign
equities through a broker, but can't execute their orders online. Some other
brokers require customers to have a separate account for each currency.
Interactive Brokers, a direct-access broker, has come up with a way to allow
customers to make international transactions through their Trader
Workstation, using a Universal Account. And it gave Barron's an exclusive
look at its new functionality.
The idea behind a Universal Account is that an investor can trade multiple
products in multiple currencies from a single account. The accounts are
segregated behind the scenes and Interactive Brokers conforms to all
pertinent regulations, but from the view of the customer it appears to be
one account.
A customer can fund an account in any base currency, and makes all deposits
and withdrawals in that currency, such as dollars or euros. If a U.S.-based
Interactive Brokers customer opens an account with a U.S. domicile and funds
it with U.S. dollars, that customer can place trades on other exchanges
without having to set up and fund separate accounts and in those currencies.
Direct purchase of foreign securities adds currency exchange-rate
fluctuations to the investment risk. But that has proven to be beneficial to
U.S. investors this year, as the dollar has declined and the
long-underachieving euro has rallied. However, the trend has gone the other
way for dollar-based investors in Argentina and Brazil, as those countries'
currencies have cratered.
Interactive Brokers' approach to international trading is unique: in
essence, a customer makes transactions in foreign currencies through a
margin account rather than buying the foreign currency first. That means
your overseas purchases are subject to margin restrictions, and that you'll
pay interest on the margin loan, but it eliminates currency fluctuations
from the picture. (Since you're borrowing the currency, you have a liability
denominated in perhaps yen or euros. That would effectively hedge against
the exchange-rate risk in foreign-currency-denominated assets you own.)
Depending on how long you hold the equity in question, you could pay less
for the margin loan than you'd pay for a currency exchange.
You can go through a currency exchange if you want to manage your margin
balance; IB's fees for foreign exchange are not much over the interbank
rates. You cannot, however, make withdrawals in a currency other than your
base currency, so you can't use your Interactive Brokers account to trade
dollars for euros when you take that vacation in Paris.
Interactive Brokers margin rates are on the low end of the scale, as are
their commissions, some of which have been cut since our March 18 cover
story on online brokers. International investments include Australian
futures, for 7.95 Aussie dollars per contract contract; French options and
futures for 2 euros per contract, and German stocks for 0.1% of the stock
value up to 15,000 euros in value (minimum 4 euros), or 0.04% of the stock
value for the incremental value over 15,000 euros. You can also trade German
options and futures for 2 euros per contract.
IB customers can buy Swiss stocks for 0.1% of stock value (minimum 10 Swiss
francs), and options and futures for four Swiss francs per contract. You can
buy options and futures for 30 Hong Kong dollars per contract on the Hang
Seng Index. British stocks can be traded for 0.1% of their value with a
minimum commission of GBP 5, and options and futures commissions are GBP
1.70 per contract.
For U.S.-based investments, IB's commissions are about as low as you can go:
one cent per share for stock transactions, with a minimum of $1 per
transaction up to 500 shares; blocks of more than 500 shares cost 1/2 cent
per share for the incremental shares. Option commissions depend on the cost
of the option itself; options priced at more than 10 cents per contract cost
$1 per contract. Futures and options on futures are $2.40 per contract.
The online-trading screens, found at the Trader Workstation, will pitch a
fairly steep learning curve at the new customer, with a spreadsheet-style
interface. But the Trader Workstation allows you to track and trade multiple
products on a single screen -- stocks, futures, options, and options on
futures. And you can set up "hot keys" for entering transactions, which
speed you through the process of placing orders.
The trading screen always shows current margin requirements at the top, and
a click on the Executions tab flips you over to show your order status. You
can select the routing destination for your order, or pick "Smart" to get
the guaranteed best price. If you click on the asked-price field, an order
line opens up, defaulted to buy 100 shares at the posted asked price. You
can modify the order, then hit the T key to transmit the order. Canceling an
order is as simple as highlighting the line and hitting C.
Early versions of the Trader Workstation frankly weren't very impressive,
but the company continues to evolve, adding capabilities that help the
frequent trader. One nice touch is the IB Poll, accessible off their home
page, which allows anyone who stops by the site to tell IB management what
they want.
Note: If you become an Interactive Brokers customer, you'll need to do your
research elsewhere, since the site is set up for making transactions
quickly, at low cost.
---
Is direct trading of international equities an important component of your
investing strategy? Write to us at electronicinvestor@lycos.com and let us
know your concerns.
Mood of the Market
Once in a while, I encounter a device that demonstrates the ability of
technology to enhance the quality of an investor's life -- one that's
useful, inexpensive, and simplifies an otherwise tedious task.
Unfortunately, the Ambient Orb, by Ambient Devices (www.ambientdevices.com)
doesn't qualify on any of those counts.
You may have seen this $299 device advertised online, or in a catalog
designed to appeal to consumers of high-tech toys -- such as Hammacher
Schlemmer. The aim of the Ambient Orb is laudable -- to render data in a way
that the user can see at a glance, like a clock or a barometer. The orb is a
small glass ball -- capable of displaying a rainbow of colors -- that's
attached to a wireless transmitter. You can configure it to show, for
example, the change in the Nasdaq during market hours: A bright green glow
means the market is up 3%, while yellow indicates no change. The redder the
orb glows, the further the market has dropped.
So far so good -- but configuring it for something useful, like a change in
your portfolio value, means you have to subscribe to the service, shelling
out an additional fee of $5.95 per month, $52 per year, or another $299 for
a lifetime subscription.
All you can see "free" (after you've paid $299 to purchase the thing in the
first place) is the change in several stock indexes, or weather forecasts
for either New York, San Francisco or Atlanta. Getting personalized
information on an orb means spending more money. I can hear comedian Robin
Williams saying, "It's either the orb, or cocaine."
In other words: Cute idea, but entirely too expensive for what you get.
Question and Answer:
Terra Lycos recently introduced a natural-language query tool, found at
http://finance.lycos.com/search, which interprets users' questions and uses
the financial information and charting capabilities of Lycos Finance to
deliver the desired information.
The natural-language technology allows Lycos Finance users to ask questions
in a conversational style, along the lines of "How much cash does Microsoft
have?" (Answer: $38.69 billion.)
The system interprets the underlying meaning of the request, retrieves the
most pertinent content available from multiple sources on Lycos Finance, and
takes the user to an existing page -- or builds a new page just for that
user. The natural-language tool is forgiving of misspellings and of wide
variations in sentence structure -- which is more than I can say for most
search engines.