IB in 6/22/02 Barron's

Discussion in 'Retail Brokers' started by agent99, Jun 22, 2002.

  1. agent99

    agent99

    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.