Commission costs, trade reliability and site performance rank highly for online investors. That's why they get such a strong weighting year after year in IBD's Best Online Brokers survey. But active traders expect more from their brokers than a place to hold shares and execute trades. They want the best trading platform with cutting-edge features. Many of the tools active traders cherish weren't around even to institutional investors a decade ago.
Active traders carry weight with online brokers. They are prime providers of daily average revenue trades (DARTs), a key metric for brokers' earnings. Tools ranging from idea creation to trade execution speed the buy and sell process for active traders. That can lead to more trading and make the money spent on advanced platforms pay off for brokers. Here are a few of their offerings:
Many investors shy away from complex charts. But technical analysis done on charts is key for active traders. Advanced platforms tend to give traders more ways to customize charts. That ranges from time period and chart type to how you lay out charts on multiple screens. That's just the start. The library of indicators is ever expanding, from the basics to proprietary metrics. Traders don't need all the indicators all the time, but want their favorites fast.
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TradeStation earned the top rating from customers for stock trading tools in IBD's latest investor survey (see best brokers survey methodology), and its robust database is a large reason why. Hundreds of indicators and studies can be applied to over 40 years of data. TradeStation's EasyLanguage lets investors do their own coding. With a little programming, traders can back-test strategies to see how they would perform at different points in history.
Fidelity also scored high in its Equity Trading Tools. Most of its tools were developed in-house. For technical analysis, Fidelity tapped third-party Recognia, which made a name for itself with chart pattern recognition features. It includes spotting classic patterns, short-term patterns and patterns on indicators.
Many brokers also offer screening tools and alerts. They help find buy and sell points based on selected indicators or patterns.
More Options For Options Traders
TD Ameritrade (AMTD) scored the highest for its options trading platform tools in the survey. TD Ameritrade's thinkorswim platform, acquired in 2009, is the backbone of the firm's options prowess.
Options bring new concepts and terms to digest and often scare beginners. But brokers have harnessed technology to shorten the learning curve. Swim Lessons on thinkorswim is a good place for investors to dip their toe in the options waters. It offers daily analysis of options strategies, often using setups in the current market. Lessons also walk you through tools like profit/loss graphs and probability analysis. They show how profits may change through time as the stock price changes.
Beginning lessons also show how with a single click on an option chain, over 15 preset option strategies are available. Can't remember the details of a multi-leg strategy? A prefilled order ticket gives you a start and then you can adjust expiration dates and strike prices.
May I Take Your Order?
At some point, most active traders feel the frustration of putting in a trade and watching it sit there while algorithms jump ahead by a penny or less. If you want to make the machines work for you rather than against you, Interactive Brokers (IBKR) is among brokers offering algorithm trading that can help get your order through. For instance a time weighted average price (TWAP) algorithm can disperse your order over a set amount of time.
Sometimes just getting your order in quickly is more important. Fidelity's advanced platform, Active Trader Pro, allows for staging of up to 50 orders. Do your homework ahead of time and set up the trades. Then you can execute orders one at a time as targets are hit. Or, if you are waiting for an event, you could place staged orders all at once.
That's not to mention all the conditional orders that brokerages offer. If you can't be at your computer or phone at all times, conditional orders and alerts can help. First, set up predetermined conditions like profit targets or loss-cutting levels. Then your trades execute without any further action on your part. Not quite comfortable letting the machines run amok? Alerts with similar conditions let you know something needs your attention. After you check out the trade, you can make the final decision.
How The Parts Fit Into The Whole
Sometimes you need to go beyond the individual trades to improve on your entire portfolio. Advanced trading tools can help with this as well. If you're getting a false sense of security from your diversification, portfolio analysis tools can dispel your myth. Correlation analysis, like that offered by Interactive Brokers, tells you if your assets aren't as spread out as you thought.
Maybe you need to perform a post-analysis on your trades to see where you can improve. Charles Schwab (SCHW) boasts a unique Gain/Loss Analyzer to help you visualize and evaluate key metrics on your Schwab account trades from start to finish. Homing on what you're doing right and identifying where you are going astray can be critical to improving your own trading decisions.
A little overwhelmed by the choices? Most brokerages offer plenty of educational opportunities to delve deeper into their advanced platforms. It's in their best interest after all. The more you understand the product, the more likely you are to trade more. Education includes webinars, chat rooms and even one-on-one coaching. Take advantage of the information offered to speed up your progress on the learning curve.