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Discount Brokerage Weekly Roundup – October 23, 2015

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Landslide elections, time machines, and Drake’s infamous victory dances (we think) – this has been a marathon week for peering into the future. While they may not have legendary locks of hair, a hoverboard or some rather original dance moves, Canadian discount brokerages are constantly thinking about and trying to keep up with the future of DIY investing.

In this edition of the roundup we take a look at the interesting moves by one online brokerage South of the border that tip their hand at what’s around the corner for the active traders/investors. Next, a short lesson in volatility that all DIY investors who trade on margin should keep in mind. On the topic of lessons we 1000 tweets deep into personal finance tips from this past weekend from some of Canada’s leading voices on personal finance to see what emerged from the ether. We cap off the roundup with some exciting upcoming investor education events, insightful tweets of the week, forum posts and some dance moves you probably won’t be able to unsee but might be able to relate to after this week.

Earnings Hotline Bling

Earnings season is back once again and this go around there was an interesting reveal made by the US-based Interactive Brokers on their Q3 2015 earnings conference call. As we mentioned in last week’s roundup, Interactive Brokers published a communique highlighting their investor marketplace’s progress but also the launch of their newest practice account feature.

This past week, the founder and CEO of Interactive Brokers, Thomas Peterffy, provided more context around this feature and what it means for his company. There were several interesting tidbits of information within that call.

First, the practice accounts. Peterffy revealed that “about 35% of new account applicants actually completed their applications and funded their accounts” however now that applicants will get immediate access to all of Interactive Brokers’ trading tools, Peterffy believes that a greater percentage of individuals will actually want to follow through on signing up. What was particularly interesting is that users can sign up for a practice account with full access to all the trading tools that they can keep using with delayed data indefinitely.

Second, their target clients are. Interactive Brokers’ platform, marketing and product experience are not geared towards every kind of investor. By their own admission they are more interested in and cater to the active traders – individuals who trade on average “about 500 times a year”. In contrast, the larger bank-owned brokerages who are typically the choice of less active investors often struggle to provide a robust platform and competitive pricing for active traders. In short, IB is a product being built for and marketed to active traders. This was particularly important in the context of platform stability in which Interactive Brokers was able to weather the storm of market outages that hit other bigger platforms, such as Ameritrade and Schwab in August. The reason, according to Peterffy was a lack of bandwidth.

Finally, it’s hard to make money, even as a market maker. This was particularly fascinating as an investor to see that major exchanges reserve the right to cancel trades. For market makers, a business arm of IB, having no visibility or certainty in times of heightened volatility means that they and others like them are not eager to jump into a position because of the risk a trade they take may get cancelled.

There were more interesting nuggets in the call especially for those interested in learning about how Interactive Brokers’ business model and approach.

A Short Lesson

One of the biggest news stories for investors and traders alike this week has been the volatility hitting Valeant Pharmaceuticals.

While volatility is a double edged sword in terms of risk and reward, for those looking to chase the storm for some short term gain, there was a very instructive lesson dealt by Questrade in terms of margin requirements being raised.

Covering their own assets by changing margin requirements is not unique to Questrade. In fact, in the conference call with Interactive Brokers referenced above, one question appeared to focus on an investor who noticed margin requirements were suddenly raised across the board – much to the surprise of the company CEO. This past week, however, clients of Questrade took notice of the drastic change from 30% to 50% margin requirement.

For individuals who run afoul of margin requirements, brokerages typically reserve the right to ‘derisk’ the position either by liquidating the offside position or requiring the account holder to bring the margin requirement up to the minimum acceptable threshold.

Interestingly, by raising margin requirements, it makes it more likely that individuals will have to sell/liquidate in order to satisfy their lenders risk comfort level. As a result, more traders are selling into the falling price and create a lower price forcing more investors to either shore up margin or liquidate. And so the death spiral goes until the buyers step in or the short sellers start to cover (of course if an exchange can cancel trades, market makers are not going to want to step in and start buying).

Another interesting consequence of ending up in a margin call is that certain deals and promotions, especially the cash-back promotions, may get invalidated. In the fine print of many of these offers, accounts must be kept in “good standing” which can mean that an account not be subject to a margin call during the promotional qualification period.

Storm chasing always attracts those with a penchant for danger, however there are risks that can creep up all through the transaction pathway that DIY traders should be aware of.

1000 Tweets on Canadian Personal Finance

The 2015 edition of the Canadian Personal Finance Conference or #CPFC15 was held last weekend in Toronto. Organized by CPFC co-founder Krystal Yee and’s Kerri-Lynn McAllister, this two day event featured lots of great personal finance tips and gems passed along by many of Canada’s most influential and passionate personal finance writers.

One of the great side benefits of having so many social media savvy writers in one room is the sheer volume of information they can collectively generate. While yours truly did not attend in person, there were a large number of like-minded Twitter stalkers watchers also in attendance.

Naturally the question arose as to what could be gleaned from a room full of personal finance writers and speakers by reading their Twitter posts.

The answer is: lots.

After sorting through and removing the spammy messages that appeared because the hashtag #CPFC15 managed to get itself trending across Canada (apparently thanks in large part to Jonathan Chevreau and Capital One Financial), what remained was an interesting cross section of personal finance topics covered from borrowing to investing.

Below are 1000 tweets collected from this year’s #CPFC15 (minus the spam) that show a bit of the ramp up, the conference itself as well as some of the reactions post conference.

While it is nearly impossible to sum up that many tweets and topics into a “Top 10” list, here are 3 interesting observations related to the DIY investing and discount brokerage space:

First, Questrade was the only Canadian discount brokerage who was actively tweeting from that conference. Keep in mind that this event brought together some of the most influential voices in the Canadian social media and personal finance blogger/writer community – including those who comment on investing. Questrade also took that opportunity to promote their affiliate program (full disclosure SparxTrading is also a participant of that program) to the community of personal finance writers which also raised a few eyebrows in the room, most notably from Jonathan Chevreau.

Second, Robo-advisors are gaining in popularity and resonate with younger investors. The real nugget was that apparently BMO is finally moving into this space after many months of trying to understand the landscape and opportunity.

More broadly, the impact of financial technology or fintech is starting to become a real challenge to the traditional model of banking and wealth management. Now there are robot money managers, branchless banks and peer to peer lending platforms encroaching on the traditional financial services sectors. That’s not news per se but the storm is real and it’s coming.

Finally, DIY investing isn’t so easy according the Canadian Couch Potato Dan Bortolotti. While the ‘discount’ in discount brokerage is appealing, there is a lot that investors take on by trying to sort through the news and noise of the markets, let alone the emotional ups and downs that accompany investing.

Overall, it was great to see the cross section of professional journalists and personal finance bloggers sharing ideas and inspiration on how best to bring the message of better financial literacy and practice to a wider audience. Happy reading!


Event Horizon

Time to bundle up and hunker down, it’s a busy week ahead for discount brokerage-sponsored investor education events. Below are some upcoming sessions that may be of interest to those who are new to investing, options enthusiasts, and those interested in technical analysis. Risk management, trading strategies, a networking opportunity, and a national investment conference round out this week’s selection. Also on the docket, the Tastytrade special event in Toronto this Monday. Here is a recap of the co-founders on a previous edition of Money Talk on BNN.

October 24

TD Direct Investing – Introduction to Investing in Options

October 26

TD Direct Investing – Stock Talk

October 27

NBDB – Introduction to Technical Analysis – Moving Averages – [Fr]

Scotia iTRADE – Concepts in Technical Analysis with Recognia

NBDB – Portfolio Management Using Momentum Strategies – [Fr]

October 28

Credential Direct – Understanding Economic and Market Trends with Fidelity

Scotia iTRADE – Options as an Income Strategy Using Puts with Montreal Exchange

October 29

NBDB – Introduction to Technical Analysis – Oscillators – [Fr]

TD Direct Investing – Introduction to Investing in Options

October 30

Desjardins Online Brokerage (Disnat) – The World Money Show

Tweets of the Week

There was lots of interest in Questrade this week as they were the only online brokerage at this year’s CPFC. It was a surprisingly quiet week for certain brokerages. TD Direct Investing continue to make waves on social media. Also surfacing this week was Credential Direct in the promo for their upcoming webinar.

From the Forums

DIY another day?

Investors are becoming more informed about how to invest their money but does this knowledge justify going it alone?   In this post from the RedFlagDeals investing thread, a user asks the question about whether to manage investment funds themselves or to use a financial adviser and pay higher fees. The debate continues.

Saving commissions on ETFs

The ability to save on commission fees while purchasing ETFs is influencing some DIY investors to switch from their current discount brokerage to others. For users who want to make frequent purchases of ETFs, paying a commission each time they buy isn’t cutting it. In this post from the reddit Personal Finance Canada subreddit, one user pitches the idea of switching from TD to Questrade to avoid paying commissions on purchasing ETFs. Also check out another thread from Reddit’s personal finance Canada section where an individual with $20,000 recently opened a Questrade account and is asking for advice on how to invest in ETFs.

Into the Close

Congratulations on making it through a marathon edition of the roundup. Whether you’re celebrating or commiserating the marathon season for the Blue Jays, or portfolio hits and misses from the week, here are some fun, but headscratching, dance moves to inspire DIY investors in those squirmy market moments. Have a great weekend!

Source: giphy
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