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How Important is Back-Testing in Helping Traders? (Part 2)

By: Karen Gentile

If you are ready to take the plunge towards programming a trading strategy, there is good news -- DAS|API is completely free for 30 days during development. Also, DAS is now offering a reduced rate for their API specifically for the trader ready to automate his strategies. A free open-source connector is available at Google's community tradelink, offering the ability to automate without hiring a programmer. DAS has recently partnered with a team of experienced developers at Traderswired.com who can be contracted to custom build unique strategies in DAS|API.

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How Important is Back-Testing in Helping Traders? (Part 1)

by: Karen Gentile

Recently, a trend has grown in which traders are going one step further in testing strategies by hiring their own coders and programmers to automate their strategies.

How can you get started testing your trading ideas on SpeedTrader Pro?

If you are not already a client, you have the option to try the free simulator, powered by DAS|INC.  For 14 days, you can manually trade using real-time quotes and analytical charting studies without risking capital.

If you are already a client, you may request a training account to be linked to your live user.  You can then take advantage of the many tools already offered in the PRO platform such as basket functionality, alerts, triggers and conditional order types.

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Everybody Jump Into the Dark Pools

by: Jesse Peterson

Dark pools are like exchanges where shares are bought and sold, but unlike exchanges such as Nasdaq and the NYSE, these market centers do not display their bids and offers. A dark pool is a pool of liquidity which can only be accessed through electronic means. Because these markets are not lit, one cannot determine who is buying and who is selling. All trades are done in “the dark.” If a buyer with a large order were to come into a lit market, other traders may see this large order and the price of the stock could be affected. The trader may have to break this trade up into several different orders to complete. It may be impossible to execute this large order without the price of the stock running away.

Another option this trader has is to bring his order to a dark pool. Unlike in the visible markets, he may enter his whole order without spooking the market. His order will be matched up anonymously through an electronic network. These transactions are then recorded on the national consolidated tape. Demand for dark pools is increasing from large institutional desks for price improvement and reduction of market impact.

Some of the most popular dark pools are Credit Suisse’s Crossfinder, Goldman Sachs’s Sigma X, and Barclays Capital – LX Liquidity Cross. In the world of trading, dark pools are just one of the many options available today to improve execution for electronic traders.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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Stop Orders: When and Why

By: Jesse Peterson

Given the volatility of today’s market, it has become increasingly more important for investors to have exit strategies in place.  In order to maximize profits and minimize losses, it is in every trader’s best interest to be aware of risk management tools available to them.  One of the simplest, yet overlooked risk management tools is the stop-loss order.

When are Stop orders used?

Before entering a trade, a trader should always know when they are entering and exiting the position.  Typically stop-loss orders are used when implementing a short-term trading strategy.  These autopilot-type orders reduce the need for a trader to monitor losses, and are therefore particularly helpful for traders to exit a position based on their risk parameters and not on emotion.

As cliché as it is to quote Warren Buffett, I feel that it is appropriate at this time. The Oracle of Omaha has been quoted saying “Rule #1: Never lose money. Rule # 2: Never forget rule #1.” These words of wisdom are true, yet many traders fail to follow them by allowing small losses to become larger losses because emotion influenced their strategy.  Large losses can be avoided by having the proper stop-loss order in place.  It is important to trade based upon what a stock is doing, not what you want it to do.

Although stop-loss orders offer crucial risk control to traders by reducing losses, they also increase the risk of getting out of a position too early. This is apparent when stocks are experiencing volatility, and was evident during the flash crash of 2010.  When the market dropped 700 points in a matter of minutes, many traders took large losses because their stop orders were triggered.  Long term holders of positions must be aware of the fact that when a stock goes against them, a stop-loss order may lock in losses. This does not allow the trader to evaluate the position, which may actually be a buying opportunity.

Fighting our instinct to become emotional about our money is a hard task overcome, so SpeedTrader offers many risk control tools to traders. As I said before these orders can reduce exposure to large losses but can also lock those losses in. It is important for a trader to recognize the most appropriate time to use stop-loss orders to cut losses and maximize profits.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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SpeedTrader Ranks No. 703 on the 2011 Inc. 500|5000

NEW YORK, August 23, 2011 (PRLog) – Inc. magazine today ranked SpeedTrader No. 703 on its fifth annual Inc. 500|5000, an exclusive ranking of the nation's fastest-growing private companies. The list represents the most comprehensive look at the most important segment of the economy—America’s independent entrepreneurs. SpeedTrader joins Spirit Airlines, television maker Vizio, Honest Tea, Dunkin Donuts and Metrokane, makers of the Rabbit corkscrew, among other prominent brands featured on this year’s list.

For a full press release, click here.

For the complete 2011 Inc. 500|5000, click here.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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SpeedTrader on ABC7 News

Watch SpeedTrader.com’s founder Guy Gentile as he discusses speedtrading during today’s volatile market with reporter David Louie.

Watch SpeedTrader on ABC7 Evening News

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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Conquering Common Misconceptions About Online Stock Trading

By: Paula Positano

One of the biggest misconceptions about online stock trading is that it is a great way to get rich fast. If you believe this, you may be putting yourself and your investment at risk. Despite the get-rich-fast misconception, it is possible to make a good amount of money trading if you do research and learn the techniques that you'll need to trade effectively.

Another common misconception about online stock trading is that the stock market is too risky. It is important to note that all types of investments carry risk. However, there are specific techniques you can use to reduce your risk when it comes to online stock trading.

Diversify your portfolio. (Do not put all of your investment in any one single stock.)

Set stop orders to limit your risk of loss.

Consider hedging your investment with options or futures.

 A third misconception about online stock trading is that online brokers charge excessive fees. While no brokers are free, some have no set-up fees, annual account maintenance fees or account closing fees. Some online discount brokers offer per-share plans with low minimums for traders who trade in small lots. Of these, SpeedTrader's per-share commission plan has one of the lowest minimums that you can find. On this plan, you can place a stock trade of 1-100 shares and pay only 39 cents in commission for that trade.

Despite the many misconceptions people have about online stock trading, it can be lucrative if you do your research and invest wisely. Choosing the right broker-dealer is also important, in order to manage your costs. After all, why would you want to pay more for the same services when you can get them for less?

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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Scalping: Turning Pennies into Profits

By: Jesse Peterson

There are many different strategies which traders employ to become successful.  Each trader must determine which strategy best fits their needs based on several factors, including experience, capital available, and trading personality. In today’s world of electronic trading, many successful day traders employ a scalping strategy. 

Scalping is a trading strategy in which traders take advantage of small price movements in a short amount of time. This in-and-out style of day trading focuses on support and resistance levels of actively traded stocks.  Scalping limits a trader's risk exposure but also limits gains one can make in a single trade.  A successful trader must have a strict game plan. There is no room for emotion when scalping, as this strategy requires nerves of steel. Tight stop losses must be entered, as one large loss can eliminate a day’s profit.

But a right mindset cannot alone make a trader successful at scalping. A trader must have the right tools available to them when employing a scalping strategy.  Use of a powerful trading platform is important to take advantage of small price movements. Real-time level II data, streaming time & sales, and direct access to over 50+ market centers are just a few of the tools available to traders on the top platforms, like SpeedTrader Pro.  These tools, along with discounted commission structures available at brokers that cater to active traders, can help traders employ a scalping strategy and turn pennies into profits. 

* Day trading can be extremely risky. Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance. You should be prepared to lose all of the funds that you use for day trading.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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3 Keys to Day Trading

By: Megan Machulski

Day trading is defined as the buying and selling of a single security in the same day.  Significant leverage and short-term strategies are used to capitalize on the rapid price movements of highly liquid securities.  While profit potential can be substantial, this trading strategy is not for everyone and significant losses can also be incurred.  If you are willing to take on the risk, there are some important keys necessary to establish yourself as a day trader.

# 1 – Investment

It’s not crucial for you to have a huge sum of money to be a day trader, but it requires $25,000 and the ability to afford swings in profits and losses. With sound knowledge and some skill in the business, you can do well.

# 2 – Information

A trader is always aware, always alert, and always well-informed. The concept of reaping profits from the market is based on prediction. Information about the ups and downs in a company’s daily business and reputation forms movements in the market -- the sensitive task for traders is to predict the trigger points for buying, selling or shorting. Regular live information and skilled pattern recognition can help you become a successful day trader.

# 3 – Technology

Internet and software solutions are vital for any professional field. We live in a fast-paced world where news over other sources are always minutes later than the market’s instant responses. Continuous RSS news feeds, live tweeting, and video feeds have changed the game by providing instant information for traders. High-speed, low-cost trading technology allows traders to put their ideas into action.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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Understanding Margin - The Basics

By: Dan Bardelli

Margin gives clients the ability to borrow money from their broker in order to trade more stock than they would be able to trade using a cash account. In a cash account, clients can only use their own money to trade; in a margin account, the broker extends "leverage" as a loan. $2,000 of equity is required to maintain a margin account, and $25,000 is required to maintain a day-trading account.

Standard margin leverage is 4-to-1 for intraday trading (day trades) and 2-to-1 for overnight trading of marginable stocks. What that means is that if you deposit $25,000 of your money to  your margin account, you would get $100,000 (4-to-1) intraday buying power and $50,000 (2-to-1) for positions you want to hold overnight. You are not required to use this extended leverage, but it is available to you when trading most listed stocks trading above $3 per share. You can use margin leverage when you buy marginable positions and also when you sell marginable stocks short. As with any loan, you will pay margin interest on any amounts borrowed.

Margin can be a powerful tool in a trader's arsenal. However, it can also be a double-edged sword: using margin can increase your profits on trades that go in your favor, but it can also magnify losses on trades that go against you. When you buy (or short) a stock on margin, the first night you are required to have 50% of the funds as your own equity (2-to-1 overnight buying power). After the first night, the margin requirement generally is reduced to 25% equity for long positions and 30% equity for short positions. If your equity were to fall below these levels, then you may get a margin call to deposit new funds or to cover part of your position. If you fail to meet the margin call, your broker may be forced to liquidate positions that you would prefer to keep.

Please note, the amount listed for leverage and equity requirements are standard amounts. There may be increased requirements on certain stocks. This is only a partial explanation of margin. For more information about margin, please review our Margin Risk Disclosure at https://www.speedtrader.com/Legal_MarginDisclosure.aspx and Trader's Responsibilities https://www.speedtrader.com/legal_TraderResponsibilities.aspx.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC

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Moving Average & Directional Movement Index (DMI): Two Powerful Indicators for Day Trading

By: Jesse Peterson

Knowledge of technical indicators is a skill every trader must have in order to take advantage of intra-day price moves. Two popular technical studies among traders are the Moving Average and Directional Movement Index (DMI).

The Moving Average is arguably the most popular technical analysis tool used by traders. The Moving Average is used mainly to identify trend direction, but it is also commonly used to generate buy and sell signals. Typically, traders use two moving averages to identify buy and sell signals. This is done by using one moving average with a time frame shorter than the other. An example of this would be to overlay the 30 min and 10 min moving averages over a price chart.

Traders would use the moving average system to identify signals when the moving averages cross each other:

Go long when the shorter moving average crosses the longer from below.

Go short when the shorter moving average crosses the longer from above.

Buy and sell indicators are also generated when the price crosses the moving average:

Go long when the price crosses above the moving average from below.

Go short when price crosses below the moving average from above.

  Another technical indicator popular among day-traders is the Directional Movement Index (DMI). Traders use this tool to determine the strength of a trend. DMI is plotted as three lines: Average Directional Index (ADX), Minus Directional Indicator (MDI), and Plus Directional Indicator (PDI) on a scale of 0 to 1. This scale is a measure of market trends. The two lines (PDI & MDI) of DMI show the amount of positive and negative movement indicators.

Traders would use the DMI system to identify buy/sell signals as follows:

Go long when white (ADX) crosses the other lines and is at the top, red (PDI) is in the middle, and green (MDI) is at the bottom.

Go short when the white (ADX) crosses the other lines and is at the top, green (MDI) is in the middle, and red (PDI) is at the bottom.

  These are just two of the many technical indicators available on the DAS Trader Pro trading platform. You may sign up to take your own FREE test drive of these indicators here: https://www.speedtrader.com/Default.aspx

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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How I started day trading!

By: Guy Gentile

It was 1997, and I had just opened a new bank account at Citibank, which at that time was one of the few banks that offered investment services and online trading. I was working for Coca-Cola at the time, so naturally my first purchase was in Coca-Cola, symbol: KO. I didn’t intend to day trade my account; in fact, I didn’t even know what day trading was. But I did notice my account value would fluctuate as the stock price moved and that KO was trading in a range. It would go from the low 50's to the high 50's and back again. So I decided the next time it went to the high 50's, I would sell it and buy it back in the low 50's. That’s how I discovered day trading.

After a few months of success, I made the biggest mistake any trader could make. I became too confident and bet the farm. I bought shares in YHOO fully margined at around $30 and watched the stock tank to the teens. I lost it all in one trade. If I hadn’t margined YHOO at that time and instead had held it into the internet bubble, it could have been worth millions.

  I didn’t give up on trading, but I was out of the game for a little while. I decided to do some homework and read a few books on trading. I focused on option trading and market patterns.

  After my search was done, I discovered a market pattern in tech stocks that were splitting 3-to-1 or 4-to-1. They would rally right after the split. So using the option trading knowledge I gained from my research, I made a plan.

 I looked for tech stocks that were big movers and were about to have a 3-to-1 or 4-to-1 split. I came across Compaq Computer, symbol; CPQ. I bought around $15,000 worth of call options near the money. The stock split 3-to-1 and rallied strongly. I sold for around a $30,000 gain. I was so excited; I was hooked on trading for life. Fast forward 13 years: I have built very successful proprietary trading systems that are in use today by manual traders and high-frequency black boxes.

What I learned early on in my career as a trader is that you need to pick a trading style that fits your personality, and you need to learn from experts in that strategy.

Note: Market patterns do not last long. This pattern worked for me in 1997, but I would not expect it to work now.

Options involve specific risks and complexities, and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Uncovered options carry special risks and uncovered option writers must also read the Statement for Uncovered Option Writers

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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Why is NYSE Floor Broker’s Order Parity Great For Some Day Traders?

By: Guy Gentile

NYSE floor brokers have been picking up order flow from day traders due to order parity. The NYSE and NYSE Amex are the only US stock exchanges that offer parity allocation of liquidity to customer orders, which enables competing orders at the same price point to share executions. Other exchanges’ order priority is based only on price and time. Order parity is valuable for day traders that bid or offer because they have a better chance of buying and selling; they don’t have to be the first to bid or offer at a price point.

Many professional and experienced traders are routing to NYSE floor brokers to capture the bid-offer spread. Some of the most active parity stocks are:

Citigroup Symbol: C Bank of America: BAC Ford: F Sprint: S There is a chance that other exchanges may start an order parity system. I encourage other exchanges to create similar order systems, as this will ensure that the market stays competitive. Traders’ demand for order parity has prompted DAS Trader (day-trading platform) to install point-to-point connections to those NYSE floor brokers, making this feature accessible to its traders.

For more info on NYSE order parity: http://www.nyse.com/pdfs/fact_sheet_parity_priority.pdf

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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Low-Latency Trading

By: George Hessler

Low-latency, or high-speed, trading is dominated by computers using high-frequency trading techniques.  Typical applications are virtual market-making strategies, which have replaced human market-makers, and index-arbitrage strategies, which keep baskets and their underlying components priced consistently.

A key component of many low-latency strategies is exchange co-location.  Traders with latency-sensitive strategies locate their servers within an exchange’s data center to save on communication latency, the time it takes to send messages from their servers to the exchange.

While in recent years the fixed costs of trading infrastructure has increased substantially, technology providers provide access to trading infrastructure on a monthly-subscription basis.  Combined with a low per-share brokerage pricing structure, many low-latency traders can execute their strategies without the high fixed costs of building their own co-located network and trading infrastructure. 

 An example of a technology provider that provides co-location services is DAS Inc.  DAS provides these services to Speedtrader clients and others who need extremely low-latency execution.  For more information about co-location, please see http://www.advancedtrading.com/algorithms/220300263.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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History of Electronic Day Trading

By: Guy Gentile

Although electronic day trading has been around for a number of years in both the equity and futures markets, it is a relatively new approach to the market for small investors.   Individuals like you can now see inside the markets that were once the exclusive domain of powerful Wall Street firms.

Day trading takes the notion of buy and hold and throws it out the window headfirst.  The strategy is quick and simple. Buy stock in lots of up to 1,000 shares, and cut your losers quickly or ride your winners.  All within the span of a few minutes or less, many times a day.  Decisions need to be made instinctively, not on prolonged analysis. The day trader’s mantra is never to hold a position long enough for it to turn on you.

As you can see, day trading is not investing at all.  It is a profession unlike any other.  Traders are not interested in the long-term prospects of a company; they are far more concerned with the intraday price swings of the company's stock.  Positions are generally held for under five minutes and are rarely held overnight.  Typical traders make anywhere between 20 - 80 trades per day; some traders, as high as several hundreds.  Traders make their living off the short-term rise and fall of the stock market.  The stakes are high, but so are the rewards. 

Day trading can be a lucrative career for successful traders, all without the hassle of traditional businesses...

Unlike other business opportunities, day trading requires no large illiquid capital investment.  No up-front buy-in money need be spent, as it would be if you were acquiring a franchise or opening other types of business ventures.   Capital is needed for margin purposes only.  Naturally, if you trade poorly, your capital will be reduced. 

Of course, you can also lose all your money day trading. Day traders should be experienced and sophisticated investors. They should understand the risks associated with day trading and the high aggregate commissions/ticket costs that will occur in relation to the high volume of trading activities.  The capital used for trading should not be funds for retirement; traders should be aware that account capital and margin credit may be lost, and they should be sure that such loss can be afforded and will not cause undue hardship.  Market volatility and volume may delay system access and trade execution.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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How Close Can You Get to Trading at the Speed of Light?

Can you trade at the speed of light?

Let’s review some facts:

It takes about 5.4 microseconds for light to travel one mile in a vacuum. Optical fiber acts as a “light pipe” to transmit light between the two ends of the fiber. So basically once your order gets on a fiber line, it could be traveling around the magnitude of light speed. But the time it takes to get your order to a fiber line could travel much slower. 

Let’s follow some steps.

1. You have to place your order on a platform.

2. The order has to travel out of your computer.

3. The order has to go via the internet or a direct line.

4. The order has to go through many routers or switches.

5. The order has to get through your broker's risk system.

6. Then it has to travel to an exchange or other market center.

By the time all of this is done, it will take between 250 microseconds (for a collocated server on a 10 gig fiber line) to 30-200 milliseconds (for an end user over the internet). This is still fast but not at light speed.

You can easily see how fast your broker is by performing a ping test against their website or servers.  Open your command prompt and Type PING and your broker’s domain name. If they are blocking pings, you should be asking yourself why they wouldn’t want you to know how fast they really are.

Our collocated servers and fiber connections provide state-of-the art connectivity to minimize latency.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.

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High-Frequency Trading: What has changed and who wins?

By: George Hessler

High-frequency trading has changed the trading game forever.  The change has been dramatic, but it has not been well-understood by many participants.  As in any big change, there have been big winners and losers, and the change has been somewhat controversial among many participants.

The real losers of high-frequency trading have been human specialists on the floor of the NYSE and the human market-makers who traded institutional flow on the floors of major investment banks.  Surprisingly, the winners have been retail and active traders.  Why?  Because the net effect of high-frequency trading has been greater liquidity, tighter spreads and lower costs for investors.

There are some who would try to put the genie back in the bottle.  They fight to rein in the high-frequency traders, but they are fighting a losing battle, as high-frequency is here to stay.  The better choice is to recognize that high-frequency trading has its limitations.  You can take advantage of the tighter spreads it creates to recognize patterns that computers cannot, and you can use human intelligence to recognize when patterns are changing.  Being able to execute with your own cutting-edge technology is important as well.  A good front-end platform will allow you to get a bird’s-eye view of the market in a way that the computers in the trenches can’t see.  Speedtrader has several platforms to help you make better trading decisions.  See https://speedtrader.com/platforms.aspx for more information.

SpeedTrader is a division of Stock USA Execution Services, Inc Member FINRA, NFA and SIPC.