Magazine article Modern Trader

Making the Electronic Leap

Magazine article Modern Trader

Making the Electronic Leap

Article excerpt

FREE TO GOOD HOME: One telephone, black, push-button, cordless. Active commodity trader no longer needs. Inquire at net-trader@electrading.com.

Might such ads pepper the classifieds soon? Futures brokers would like to think so. Online order entry saves them time and money, but if a Web browser is to replace the telephone, real benefits will have to trickle down to traders. Early promises certainly imply as much. These include faster fills, fewer order mistakes (on both the broker and client ends) and smaller costs.

"I very much like the simplicity and speed of having an order queued up and ready to go, and just hitting the 'do it' button for instant execution when the moment is right," says Gary Fritz, an S&P 500 day-trader in Fort Collins, Colo. "Plus, when I'm in a frenetic trading state, I'd really rather not deal with humans?

The biggest drawback of online order entry is reliability, says Fritz, who has temporarily stopped entering orders online for this reason.

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"At least with a voice-placed order, you know there's a human on the other end who's received and acknowledged your order," he says. "You know you can hold his feet to the fire if he screws up.... With [electronic order entry] there are too many links in the chain that can break."

Frederick Braden, an E-Mini day-trader in Houston, is satisfied with online order entry. Braden, who has been trading for about four years, just started entering orders online with NetFutures about three months ago.

"When I place a limit order close to the market, it generally takes three to five seconds to fill," Braden says. "I don't think I've ever waited over a minute."

Online order entry generally works like this: When you enter an order via the firm's online order entry interface (typically a modified Web page), the order is routed to a broker who then re-enters the order into a Tops terminal. The order then is routed through Tops to, for example, a printer on the exchange floor where a clerk hands it to a pit broker who executes it.

But there is no standard yet, as these steps vary widely among brokers. One firm that does things differently is Timber Hill, a New York-based firm. (Its brokerage arm is Interactive Brokers.) The Timber Hill system bypasses Tops completely. Orders are routed directly from the firm's order-entry interface to the company's hand-held devices in a pit.

While numerous brokers may offer online order entry, the technology that ties into exchange order-routing systems must be. developed by the clearing FCMs. So while dozens of introducing brokers may offer online order entry with varying rates and ancillary features, a third of those may use the same underlying system (LeoWeb from LFG, for example). …

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