From the December 01, 2006 issue of Futures Magazine • Subscribe!

Best hardware and software for trading

Online trading requires an understanding of markets, expertise in fundamental and technical analysis and a dedication to research and education, but those things won’t save you if your equipment is not up to the task. You will need to know upfront what is the minimum you require and what’s worth paying a little extra for when buying hardware, software, connectivity, a platform and trading tools.

Hardware

The primary components for trading electronically are your processor speed, how much random access memory (RAM) you have, your connection speed and a video card.

“Today you can get fairly decent home computer for around $300 to $500,” according to Christopher Tiu, sales engineer at Townsend Analytics. “That will get you a two gigahertz [GHz] processor and about one gigabyte [GB] of RAM and a 100 gigabyte hard drive. Those are the basics if you’re going to be trading a browser-based platform,” he says. A 32 to 64 megabyte [MB] video card is considered standard, but you may need a larger one for two monitors.

“If you’re only going to be looking at one chart with one depth of market screen, you can get away with a lower-end machine, but if you’ll be trading on a platform that requires you to download a firm’s trading software to your computer, you will require at least a 2.4 GHz processor or higher and one or two GB of RAM,” says Tiu, adding the more data you’re pulling in, the better processor and more memory you’ll need. “The thing about browser-based platforms is that they let you become portable because you can trade from any computer, anywhere,” says Dan O’Neil, principal at Xpresstrade, which has a browser-based platform.

Chris Kelley, tech support specialist at Xpresstrade, says, “The memory you need really depends on how many programs you’re going to have open and running at the same time on a regular basis.”

According to our experts, hard drive space is not a major issue because most computers come with between 80 and 120 GBs, which is acceptable for trading. “Plus, today, with an external hard drive or USB drive that you can just plug into your computer and save all your stuff; that’s a nice add-on that’s also worth spending a little extra for,” Kelley says.

When it comes to monitors, whether or not you want to go with multiple screens depends on how many charts and symbols you’re looking at on a regular basis. The preferred monitor is at least 19 inches for trading purposes, especially if you’re going to have only one. “You’re going to want to see at much as possible on your screen,” Tiu says, adding that most professional traders have two monitors as a minimum. “Usually they are doing charting and technical analysis on one monitor and trading on the other,” Tiu says.

A second monitor can be used for research, news services or account balances. Kelley says that instead of using one monitor and switching from those different windows to the charts and order-entry platform, it’s worth the extra money for a second monitor. A second video card will be required for a second monitor.

CONNECTION SPEED & DATA

“Online connection speed is the single most important factor,” O’Neil says. A fast connection is important for active day traders who need fast order executions, confirmations of trades and delivery of news, quotes and other market data.

“A 56K modem dial-up connection is just not going to be adequate anymore; traders will need a cable or DSL line,” Tiu says. However a modem may be used as a backup connection. For the active day trader, a cable modem connection or a DSL phone line connection is highly recommended.

“There are traders who use dial-up to trade, but a broadband connection will greatly enhance your online experience and the extra money is extremely well spent,” O’Neil says.

Just as important as the hardware is data. Most platforms will offer some type of delayed data included in their platform, but the cost of accessing most real-time data will not normally be included in the price of your basic trading software. A separate subscription fee for real-time data feeds may apply. Xpresstrade offers free real-time snap shot quotes.

ORDER EXECUTION, DATA & EXTRAS

The main things you’ll want to look for in a trading broker/platform are quotes, charting, price, news alerts and other types of news.

“Traders should always remember that while commissions are important, there are a number of factors to take into consideration first when evaluating any online futures broker — things like order execution, breadth of trading tools, trading platform ease-of-use, quality of customer service, etc.,” says O’Neil.

“Another important thing to remember is that a trader will want to look for a platform he can grow with,” says Mike Felix, director of marketing for Townsend and RealTick.

It’s important that a trader pick a platform that offers multiple asset classes.

O’Neil agrees and adds a trader will want access to all the markets, both electronic and open-outcry. “More and more futures markets are shifting to electronic trading, but there are still a number of attractive futures products — coffee, sugar, cocoa, cotton and orange juice are great examples — that still trade either exclusively or predominately in the pits. Brokers that don’t offer access to all the markets are limiting your trading opportunities,” he says.

Also, O’Neil says a trader should have access to a full range of advanced contingent orders. “These special orders allow you to program your trading platform to take profits or cut losses automatically, so that you needn’t sit in front of your computer all day. When you place the original order, you ought to be able to specify, simultaneously on the same order-entry screen where you’d like to take profits and where you’d like to place a protective stop,” he says.

Felix says another useful feature is the ability to trade by clicking on a chart, which would not require a separate order-entry screen. This is also useful if you have only one monitor.

There are two basic types of online order execution services available. The first and most common type is offered by Internet-based online discount brokers. The second type of service is provided through online systems that link the customer directly to the relevant exchange through a modem or dedicated phone line. These systems are generally referred to as Electronic Direct Access Trading (EDAT).

Internet-based discount brokers vary in how they execute customer orders and the speed it takes to execute or confirm orders. Some firms choose to route certain orders to another broker or third party for execution, which takes longer.

Each trader will want to look at a firm to see what extra services they can get for free or what unique products they can pay extra for that may aid their trading style.

Xpresstrade offers free educational content throughout its platform and only charges commissions, not for use of the platform. Townsend’s RealTick platform services range from $150 to $400, plus exchange fees and any add-ons.

One service Townsend offers is instant alerts on stocks experiencing abnormal activity through the Hottrend stock-scanning engine, which monitors the exchanges and displays securities that begin to behave abnormally.

Whatever it is you’re looking for, someone offers it at some price. It is up to you to decide which add-ons will add value to your trading and are worth the added cost.

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