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 firstname.lastname@example.org 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.