Active investors leave day-trading room
Firms diversify into remote trading through the Internet
Hugh Anderson
Financial Post
The business of online investing for active traders in Canada has been shaken up of late, as trading volumes dwindle and regulators clamp down on cross-border accounts.
For an outfit like Swift Trade Securities Inc., one of the fallouts has seen the firm start playing the market directly by hiring its own full-time traders to pull cash in the door to compensate for a slowdown in the business.
Meanwhile, the clampdown by Canadian regulators has led Swift Trade to move into the mainstream fold in terms of clearing its trades.
Swift Trade, previously known mainly for putting hyperactive day traders in a room full of computers to chase minute by minute moves in stock prices, used to operate outside the jurisdiction of Canadian regulators, and cleared its trades through a U.S. firm. These days, however, it is a fully fledged member of the Investment Dealers Association of Canada and it clears its trades through Penson Financial Services Canada, also an IDA member.
Swift Trade's traditional business was hit hard by the collapse of the tech stocks, which were favourite vehicles for day traders. So it's diversified into so-called remote trading through the Internet. This service lets clients do hands-on trades from their own computer -- at the office or at home.
But this is a very different business from just placing your orders through a standard online broker. It's called direct access because it gives you a direct connection to today's electronic stock markets, and puts you alongside and in competition with traditional professional market-makers.
Your orders are executed almost instantly, sometimes before you've lifted your hand from the keyboard. You also get to choose where your order is executed as you search for the best price from competing market-makers.
Swift Trade runs its Internet trading from its Montreal office.
This is the same place where TradeFreedom Securities, Canada's only other direct-access broker so far, operates. In the past, TradeFreedom, an IDA member, also operated a day-trading room. But it switched entirely to remote Internet trading a while ago.
Both firms emphasize that their services are suitable only for active investors. Providing direct access to the market and the comprehensive real-time information necessary is expensive. Each firm requires you to download sophisticated software to your computer, which puts a display on your screen that resembles NORAD combat screens. Swift Trade uses Tradecast.
TradeFreedom supplies Realtick. Clients who trade frequently get the software free of charge. Those who don't meet various minimum trading numbers pay part or all of a pretty hefty monthly charge.
Trading commissions are fairly low, however, ranging from US$9.95 for frequent traders up to US$14.95 at Swift Trade and US$15.95 for less active clients.
Day trading got its name because practitioners bought and sold hundreds of times a day and almost never owned a stock overnight. But the two firms' client lists include so-called swing traders, who may hang on to a stock for a day or two but not usually much longer.
Swift Trade offers access only to the U.S. markets.
TradeFreedom does offer access to Canadian markets as well, but most active investors prefer to operate in the much more liquid U.S. markets that provide faster action and more opportunities.
More competition is probably on the way for the two Canadian firms. A U.S. firm, Interactive Brokers, has applied for registration in Canada and may get clearance to operate here this month.
Another U.S. firm, Datek, was allowed under a settlement with Canadian regulators to keep its Canadian clients temporarily, while it also applied for registration in Canada.
The firm says that this application is being processed. U.S. rival Ameritrade, involved in the same settlement deal, did not respond to a request for information about its plans.
hughie@unclehughie.com; www.unclehughie.com |
