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Top Innovative Investment and Trade Platforms: Pros and Cons

Market Place — Fri, 21 Nov 2014 07:00:58 +0000

When you talk about investment and trade platforms, it is important to do a comparison in terms of each vendor’s advantages and disadvantages. A good trading platform serves as a pinnacle for maintaining and balancing your trading portfolio, not to mention it also aids you in keeping your funds reinvested, offering services at reduced prices. This is especially important to consider if you have your holdings divided in various brokerages and accounts. The famous John Bogle once said,

“When there are multiple solutions to a problem, choose the simplest one.”

Managing your investment and trading portfolio using a computer is just not simple, but it’s smart as well and it can potentially increase your investment returns. Mentioned below are four of the best trading platforms with their respective pros and cons to help you decide which one(s) you should choose. So, here goes a summary of the best platforms with the details presented further below:

Vanguard

Pros

Amazingly reduced fee index ETFs along with mutual funds that don’t include a commission fee
Provides the benefit of automatically reinvesting your dividends
Useful online trading tools that can help you analyze and evaluate your entire trade portfolio which also includes external accounts as opposed to the broad market

Cons

User interface is not so user-friendly and might end up feeling bulky
Takes too long to transfer funds and switch between trading accounts in comparison to other platforms
Moving money and rebalancing your portfolio takes a bit of a manual input which does take considerable time especially if you’re managing multiple accounts
You will receive a lot of duplicative email pertaining to your accounts with Vanguard which can be really annoying

2. SigFig
Pros

SigFig is indeed a promising platform that has an interesting user interface with attractive visualizations
You can select from two different options, namely free evaluation and advice and automatic rebalancing at a fee of $10 per month

Cons

Although there is no doubt about the beauty of its interface, where it lacks is functionality. The interface feels too traditional when used and appears to emphasize on short period returns
Constant emailing can be irritating
A lot of screen space dedicated to short-term returns and real estate

3. Future Advisor
Pros

A pleasant user interface
FutureAdvisor also provides a view of all your investment which you are holding in different accounts
Offers two different accounts, like SigFig
Automatic tax-loss harvesting
FutureAdvisor enhances your current holdings (in contrast to liquidation and reinvestment)

Cons

Because of the fact that FutureAdvisor altered its models a couple of times over the years, it also charges an account management fee which is 0.5% more than other providers
A lacklustre customer support system, you may or may not get a reply from them pertaining to a query, complain and or an enquiry
Irritating emails about short-term profits
A non-transparent methodology in terms of your portfolio

4. Wealthfront
Pros

A visually pleasing interface, not to mention easy to use
Offers different portfolios for both IRA and other taxable accounts
Provides free management of your first $10k
Automatic tax-loss harvesting which can be useful for investors
Wealthfront has control of more assets than any other provider mentioned here
Reduced fee (0.25%)
A transparent system

Cons

For $100k accounts, the fee charged is higher compared to other packages
Minimum of $5k to register an account with Wealthfront
You have to create your account first in order to look at their internal interface

5. Betterment
Pros

A good website design and smart user interface
Depending on the type and size of your account, you can enjoy reduced fee up to (0.35% to 0.15%)
You can also choose to invest in fractional shares
Betterment ranks 2^nd of the platforms in terms of number of customers
A transparent portfolio style
No initial deposits
Impressive foundational philosophy with a focus primarily on long-term returns and automation of trade
Offers automatic tax-loss harvesting
As of 20^th of July this year, Betterment also offers an enhanced bond mix for accounts which are taxable for example IRA accounts

Cons

Betterment offers no REIT ETFs

All in all, these are five of the best platforms with their pros and cons to help you select the one that suits your needs the best.

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The Genesis of Algorithm Trading

Market Place — Wed, 12 Nov 2014 07:00:06 +0000

“Algorithmic trading frees you from the drudgery, but do you have good ideas? There aren’t that many masterpieces out there.” EquaMetrics’ Christopher Ivey

Several traders and investors in the global money markets have been for quite some time transforming their entry, exit and financial management and investment strategies into automated computerized trading which in turn allows the computers to trade for them. And you have to understand that one of the biggest advantages of using technology is the fact that it complete eliminates any emotion. It takes the emotion and any bias right out of the trade.

However, it is also important to note that when you let the machine do all your work, especially when you talk about trading, there are bound to be a few mistakes and these mistakes can be pretty much devastating for both traders and the markets. For example, let’s go back to the ‘flash crash’ which happened back in May 2010. And it happened in August 2012 as well when the trading software used by the traders and investors at Knight Capital Group Inc. broke down. What this crash did was cause a series of unintended stock trades which resulted in a $440 million loss for the company.

And the irony of all it was the fact that Knight Capital Inc. was known in the financial world as a market trendsetter and trailblazer which employed the services of experts and seasoned traders and investment specialists who had the ability to monitor trades on both sides of a particular security to make sure that the market functions smoothly. However, despite the probability of setbacks, almost all of Wall Street now heavily depends on algorithmic programs to conduct trades quickly and decisively.

There is no doubt about the fact that many traders have mixed feelings about using computerized programs to run the show and say too much algorithm trading might just destabilize the markets. And another thing, algorithm trading isn’t something that was invented a few years ago. The concept was implemented several decades ago.

Algorithm Trading – A Look Back in Time

Back in 1951, a student from the University of Chicago, Harry Markowitz, acted on the advice of his Ph.D. supervisor, Jacob Marschak, and proceeded to complete his dissertation on how to successfully apply complex mathematical algorithms and concepts and fuse them with the financial world, more specifically, the stock markets. The result, however, turned out to be quite fascinating and transformed into a modern portfolio explaining the difference and conflict between a security and how it may affect the profits risk-averse traders demand when dealing in potentially riskier securities.

Back then, the normal method to calculate and determine a variance in securities included a thorough evaluation approach which was designed by John Burr Williams in the 1930s. Investors used Burr’s price-to-earnings ratios and other factors pertaining to the overall statistical health of a company or organization. These methods helped traders at the time to determine whether or not the real price for a security became a standard tool for analysts.

An Enhanced Trading Portfolio

Once Markowitz came up with his brilliant new method, he aided in the development of various algorithms that do all the important and necessary calculations to make an enhanced trading portfolio. With his intellectual contributions and the advent of the IBM System/360 central processing unit in 1960, strategy traders and investors as well as various financial economists had the power to methodically evaluate millions of information and data centres that have been produced since.

Around the same time, there was another trading methodology that became popular, named the Signal theory, a strategy that implemented to extract various patterns and information from a given set of data. Stock charting experts and analysts were never too worried about the price of a security. What they were concerned with is how much would the price fluctuate. The data extracted or collected from a fluctuating stock price drops in value far too quickly. So, when investment companies were emphasizing on a core and fundamental analysis that would aid in the execution of trades stretched over a period of several days or weeks, the signals experts detect have to be executed right then and there.

Investment companies since then have been trying not to rely too much on human trade executions and decisions and that is why most of them switched to using computerized programs as algorithms are designed to conduct instantaneous trades on the fleeting information given. Long-Term Capital Management, which was established in 1994 by John Meriwether, employed algorithms and computer programs to identify tiny fleeting variances in stocks and securities so they could make hefty profits.

On the other hand, the company was also experiencing a shortfall in yearly profits solely because of the fact there were other firms which began to use algorithm trading technologies. This led to LTCM devising other strategies that didn’t quite seem to pan out and resulted in the fund losing everything in 1998.

With the downfall of LTCM, there was little consideration to the potentially destabilizing effects of algorithm trading in the money markets. And within a decade or so, algorithm trading transformed into nano-trading. Nano-trading is all about catching the signal faster than others. Even a second seems like forever in the financial world. For example, an algorithm trading centre near the New York Stock Exchange would use its servers to detect and catch signals a millisecond faster than a nano-trading company which is further away from the stock exchange.

It is also important to understand that traders and investors, even small ones, would never attempt to rely on the basic fundamental evaluation methods. And according to reports by chartists, algorithm trading will rule the trading world and looking back at history, it is makes sense to expect more problems associated with algorithm trading in the future.

Although algorithm trading has its merits and can prove to be a money-making tool, if executed correctly, at the same time it is also imperative you never substitute the use of technology for cleverly thought-out and well-executed trading.

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Trader Personality: Jesse Livermore

Market Place — Wed, 01 Oct 2014 06:00:11 +0000

Jesse Livermore, who is thought to be the grandfather of stock trading, was born in 1877 and died in 1940. Although Jesse traded more than 100 years ago, the principles he used for trading at the time are still practiced firmly by many of the legend’s followers today. He was an ordinary American citizen who rose to riches through trading and also saw his share of multi-million dollar losses.

‘Boy Plunger’ was the nickname given to him early in his life when he started his journey towards a successful future as a trader through various bucket shops, which is another name for gambling houses. He used to trade there and started at the tender age of fifteen. When Livermore turned 40, he already had a $100 million fortune which in today’s terms can amount up to $6 billion dollars, a staggering amount. And he rose to fame when he shorted the market in 1929 when the entire US stock exchange was crippled.

The Trading Style of Jesse Livermore

Jesse was an active and successful trader in the US even before the great spike and plunge of the US economy. The Civil War, having been long over, people still remembered it. However, it was also era of great industrial development in the US at the time which presented a great deal of opportunities for smart traders and businessmen. It was at this time that America rose to becoming a safe haven for all who needed shelter and food.

This induced a massive influx of settlers who chose to escape the endless hardships of the Old World to embark on new beginnings through hard and honest labour. And this is what Jesse Livermore loved and the sort of environment he chose to invest in. He got involved with people like Henry Osborne Havemeyer, the owner of American Sugar Refining Co, along with the owner of the National City Bank, which has become Citigroup today, E.H. Harriman, the master of the railroads, J.P. Morgan legendary banker and the founder of Standard Oil, William Rockefellar.

He was rolling with all the big people responsible for developing these booming industries. Livermore was familiar with each and every industry, from coal to coffee, to sugar and the world of banking, which meant he had a tremendous amount of knowledge and information available to him at any given time.

Yet with all that knowledge, Livermore was convinced not to anticipate anything in the market and chose to be patient and let things swing in the way his knowledge enabled to predict and believe that it should and it did, so he did what he did best: invested in a bullish market and shorted in a bear market.

However, Livermore’s personal life was not as successful as one might imagine. Having endured three unsuccessful marriages he was also stricken with clinical depression which had been with him for a long time. And this is what led him to taking his own life in 1940.

The Grandmaster’s Principles in Momentum Trading

Although Jesse Livermore was active along time ago, trading in commodities and stocks, making millions. Believe it or not, the methods and principles he used are not so different from today’s financial world and just as legitimate. Jesse Livermore used to say a successful trader never acts on his own instincts until the market has deemed his instincts correct. If you try to understand the meaning behind what Livermore was talking about, it would do you good to remember you are in the market to make investments and not to form prophesies.

And many of the successful traders today follow in Jesse’s footsteps, which is not to anticipate but to follow the markets to a more fruitful return. The maestro also used to stress on the fact a trader can never buck the stock market, because there is never anything new. However, there are always variations of the same patterns, insightful for a man who traded 10 decades ago.

Livermore also emphasized on the fact one should never trade when he is unsure of the opportunities in the market, learn to hold money. This means all good trades need time and a lot of patience and greed is the worst enemy of a trader. All in all, Jesse Livermore’s wisdom still carries out, even today where everything is modernized in the world of stock, hedge funds and ETFs.

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The DNA of Successful Trading

Market Place — Tue, 30 Sep 2014 06:00:50 +0000

The world of trading is often filled with enigmatic elements due to the fact there is no one formula to trade and be successful. Think of the trading market as an ocean and imagine that all the traders in it are surfers. Now, what does a good surfer require? He requires balance, discipline, patience, a proper surfboard and a keen eye on the environment around him. That is what will allow him to ride the waves successfully and not crash at every attempt. Well, the world of trading isn’t that different and you have to do all of the aforementioned if you wish to conduct successful trading.

The DNA of Effective Trading

The Approach

Before you begin to trade, it is important that you first prepare. You should identify your targets, your goals and align yourself with the market and the instruments you would require to successfully accomplish your goals. Do what you know best. For example, if you’re into retail, then look up retail stocks instead of oil trades.

A Proper Time Frame

After you set your goals, the next thing to do is identify a proper timeframe in which you will assess what type of trading is best suited to your ability and your attributes. For example, trading using five-minute market charts indicates that you are more comfortable in a position where there is no overnight trade risk. However, selecting a weekly chart to trade would suggest you are more comfortable with overnight trades and the risks associated with them which includes letting a couple of days slide by.

Moreover, try to first determine whether or not you have the strength and focus to sit in front of your laptop or PC or if you would rather do research all weekend and arrive at a trading decision in the week ahead based on your evaluations. Always remember that if you want to make money in the trading market, learn to wait.

Methodology

Once you have determined a timeframe, the next thing to do is discover a good methodology. For example, most traders prefer to buy support and then sell resistance, while others prefer to buy or sell breakouts, yet many trade using MACD and crossover indicators. Furthermore, upon selecting a methodology, it is important that you give it a test run to see whether or not it is consistent with your strategies. If you see that your system combined with your methodology is reliable most of the time, it is safe to say you have an edge. So, test each methodology for positive results.

Discipline

Discipline here refers to how much patience you have. It is essential that you have the patience to sit and wait for you system to indicate an opportunity for you and when that happens, you have to be ready. However, there will be times when the price action will not reach your predicted price level. When that happens, you have to be patient enough not to start second guessing your system.

Objectivity

Objectivity plays a crucial role in trading and it can make or break a trader. Your emotional detachment relies on your strategies and methodology of trade. When you see you have a system that gives you a good entry and exit into the market, you have nothing to worry about. You can’t allow your emotions to get the best of you and be influenced by other traders who will never be interested in your trade levels and may often misguide you. This is by the far the most important aspect of trading.

Keep Your Expectations Real

It is true that, at times, the market does makes exceptionally big moves, but being realistic here implies to the fact you can expect to make $2000 off a $500 trade each time you make a move in the market. Though using short-term timeframes entails fewer opportunities to make a profit, long-term trades carry high risk, but high profits. In the end, you will have to make a ‘reward versus risk’ decision.

Control the Risks

At the end of it all, successful trading depends on how you control and manage your risks. Be quick with taking losses, if necessary. It is important you direct your trade in the right direction. If it pushes you back, exit the market and try again. Controlling risk requires both discipline and patience.

So, in the end, it is all about your approach, tactics and discipline when it comes to pulling off successful trades. In regards to this, Warren Buffet says that there are two rules to trading successfully

Don’t ever lose money
Always remember rule number one.

So, always be prepared to counter losses quickly and never wait for big losses to happen.

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Trader Personality: Paul Tudor Jones

Market Place — Sat, 27 Sep 2014 07:00:48 +0000

Born on the 28^th of September, 1954, in Memphis, Tennessee, Paul Tudor Jones II is the founder and owner of the Tudor Investment Corporation. The management of his other private investment partnerships is done through his own corporation, which you can refer to as hedge funds. Tudor Jones had an estimated net value of $3.2 billion in 2010 and as of now, it stands at $4.3 billion.

He studied and attained an undergraduate degree in economics from the University of Virginia in 1976 and was also a welterweight boxing champ. He began working on the trading floors in 1976 as a clerk and gradually became a broker for the famous firm E.F. Hutton four years after. In 1980, he was adamant on earning on his own and made a lot of profitable deals for almost two and half years before he started to get particularly ‘bored’ with his work.

After realizing that he has to do something else, he then successfully applied to the Harvard Business School, and to the surprise of many did not join because he realized the skill set he really wanted to capitalize on wasn’t going to be taught to him by anyone and decided to take another approach. He went to William Dunavant Jr. for career advice. Dunavant, who is the founder of one of the globe’s foremost and biggest cotton merchant company, sent him to meet another commodities broker by the name of Eli Tullis, who was in New Orleans.

It was Tullis who took him in and began to mentor him, showing him the ropes of cotton trades and painted the future of the cotton industry on the New York Stock Exchange.

The Early Success of Paul Tudor Jones

In 1980, Jones proceeded towards establishing his own company, the Tudor Investment Corporation, which is regarded as today’s foremost organization in asset management companies and has its headquarters in Greenwich, Connecticut. The corporation consists of affiliations tied to leading active trading, investing and research in global equity, venture capitalism, currency, debt, and the commodities markets.

Jones became really popular following the events of Black Monday in 1987, when he accurately predicted the markets, earning massive profits due to large short trade positions. He, along with his colleague and friend, Hunt Taylor went on to successfully create FINEX, the financial futures’ section of the New Board of Trade and were also instrumental in the making of US dollar index futures contracts.

Paul Tudor Jones also went on to becoming the Chairman of the New York Cotton Exchange from 1992 to 1995.

The Futures Trading Strategies of Paul Tudor Jones

Paul Tudor Jones is a contrarian investor. He keeps going for single trades until an idea essentially changes his mind. Most of the times he works on keeping his position in the markets cut down. Then he attempts to trade in small amounts when he has trouble hauling in good trades. Jones also considers himself as the best when it comes to identifying and taking advantage of market opportunities. When he thinks up of a brilliant idea, he initiates the pursuit of its implementation from a low risk perspective until he is deemed and proved wrong or at least till another idea befalls him.

He is also a swing trader and believes that considerable money can be made at different market turns. Although he has missed quite a bit of meat all around the middle, he always managed to catch a good share of tops and bottoms. He is by the far the calmest investor and trader of all and is always relaxed, thinks coolly and always exits the market swiftly whenever his losing position in the market starts to get to him.

Jones has the habit to decrease his trading mass when he sees he might lose and increases it as his trades get successful. Plus, he also tracks his whole portfolio equity in real-time and believes that prices always move first, the fundamentals should always be a secondary concern. He always looks at the bigger picture and does not even think about the losses he incurred moments ago. Jones also emphasizes deeply on not involving your ego in the game. He says that a good trader always questions his ability and form at every turn, always yearning to improve. If you think you are better than the rest, you will fail.

Contributions

Paul Tudor Jones has also made sizeable donations to the University of Virginia, his Alma mater, and has contributed $35 million for the development of a brand new basketball arena which he named after his father, John Paul Jones.

Married to a former Australian model Sonia since 1988, Jones and his wife have four children together.

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