In Race to Snag the Active Trader, Schwab and Fidelity Upgrade Systems--But Still Need ECN Links
In a battle for the active trader market, Charles Schwab & Co. continues to upgrade its new online trading product dubbed Velocity with new functionality while going head-to-head with Fidelity Investments' newly launched Powerstreet Pro. But according to an industry analyst, Velocity may have a hard time competing against offerings from E*Trade and Datek Online, which charge lower commissions and, in Datek's case, provide direct access to the Island ECN.
In October, Schwab added options trading to Velocity, and last week was about to roll out portfolio management--a feature which shows unrealized gains as someone is managing their positions, according to Lambert Bunker, vice president, product development, electronic brokerage at Charles Schwab, Velocity is a Java-based desktop trading application aimed at active investors who trade more than 48 times a year.
It was originally rolled out in late August to customers of Schwab's Signature Services Program that had either $100,000 in household income or 12 commissionable trades per year.
Velocity utilizes Castanet software from Mountain View, CA-based Marimba that allows Schwab to "push" updates of new functionality over the Internet to the customer's desktop. Because Castanet is only sending data over the Internet and not waiting to render HTML pages and send graphics, "it's also the fastest way to get information back and forth between Schwab and its customers," says Bunker.
However, Velocity does not yet supply Nasdaq Level II stock quotes, which show the inside bids and offer prices of all the Nasdaq market makers and are considered a staple of online brokers catering to active traders. According to Bunker, "Schwab is piloting Level II and streaming quotes in the fourth quarter and is looking towards implementations next year."
Meanwhile, Fidelity's Powerstreet Pro plans to add Nasdaq Level II stock quotes this monther, and already has the ability to execute complex trades including options. Targeted at traders who make at least 36 stock, bond or option trades over a 12-month period, Powerstreet Pro, an upgraded version of Fidelity's Active Trader Webstation, was launched in late September through the firm's web site, fidelity.com.
Unlike Powerstreet Pro, which is a Web-based trading service, Velocity is a desktop application which allows the trader to perform certain functions offline and only connect to the Net when they want to update their portfolio with real time quotes or send in a trade. "For instance, it allows a customer to set up orders and store them offline, then watch the market and as they are ready to submit the orders, they can send one, some or all of them all at once," says Karen Tam, a director of product development in electronic brokerage at Schwab.
However, while Velocity speeds up how quickly the trader's order gets from their desktop to Schwab, it doesn't change the way that orders are executed at Schwab, concedes Tam. Online brokers typically send Nasdaq orders to wholesale market makers such as Knight Trimark or Schwab's own Mayer & Schweitzer.
As of last week, neither Velocity or Powerstreet Pro provided direct access to an ECN, though both Schwab and Fidelity are investors in Redibook.
Larry Tabb, director of The Tower Group's securities and investment practice, questions whether Schwab and Fidelity can serve the active trader if neither system provides direct access, for instance, like Datek Online does with Island.
Bunker says Schwab has after-hours trading through Redibook. "We will develop that capacity first and then additional ideas will be evaluated," he says. Meanwhile, Fidelity also plans to offer after-hours trading via Redibook from 4:30 to 8:00 p.m., according to a spokeswoman. Redibook is going to be linking with five other ECNs through SelectNet, she says.
Still, Tabb says the issue is whether Fidelity and Schwab, via Redibook, provide the kind of venue that active traders will want. Certainly pricing is going to be an issue," he adds. Tabb points out that E*Trade's active trader offering, dubbed Power E*Trade, charges as low as $4.95 a trade if someone does 25 trades a month or 75 trades a quarter, while Datek charges $9.99 for all types of trades. Even Fidelity discounts its Web trades to $14.95. By contrast, Schwab charges $29.95 a trade.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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