Personal Finance October 31, 2010, 10:22PM EST

Online Brokers Upgrade Retail Investor Tools

Businessweek.com's latest look at new technologies for online investors presents trading sites that offer tools and strategies once reserved for professional traders

Story Tools

(Corrects number of commission-free ETFs offered by Fidelity in 8th paragraph and title of TD Ameritrade's Michael McGrath in 21st paragraph.)

Institutional investors can deploy ultra-high-speed stock trades and complex strategies cooked up by PhDs to make their market bets. How can the little guy hope to keep up? As part of an ongoing series on the latest tools and technologies available to online investors, Businessweek.com surveyed the efforts by online investing sites to equip smaller investors with advanced weapons to help narrow the gap.

Websites such as such as Fidelity, TD Ameritrade (AMTD), and tradeMONSTER have come through with features that online traders couldn't have dreamed of little more than 10 years ago. New functions not only enable them to use advanced strategies such as identifying stocks whose options have unusually high volume on any given day, but also suggest ways to hedge trades. In some cases, investors can pretest trade outcomes and share trading ideas online with peers. They're even gaining access to dark pools, the private trading platforms that institutions use to execute most orders because they accommodate far bigger blocks of shares and have minimal impact on stock prices.

Institutional investors typically have access to advanced screening, charting, and analytics tools that individual traders lack, as well as sophisticated research and ways to scan the market in real time for unusual activity in stock options and regarding volatility. Obviously, retail investors are still far from having the arsenal of trading tools and techniques that big hedge funds use, but they at least have more ways to deal with an increasingly unpredictable market.

"It provides a lot of comfort so I can decide whether I like a trade from the outset" before executing it, says tradeMONSTER customer Greg Jensen about TradeLab, an analytical tool the site offers that shows how a trade would perform under specified conditions such as implied volatility. Jensen is a founder and chief trainer of investing education site Options Animal.

Do-it-Yourself Stock Screeners

Fidelity has a proprietary tool that gives customers access to 13 private exchanges with greater liquidity than the public market and lets active traders choose which trading venue their trade will be sent to. A separate Fidelity tool matches institutions' resting limit orders with customer orders that get filled at the national best-bidder offer and execute instantly. E*Trade Financial (ETFC) and TradeKing offer access to dark pools for portions of their retail order flow.

Almost all online brokers offer screening tools that narrow the investment universe from over 7,000 stocks, more than 1,000 exchange-traded funds, and thousands of mutual funds to a select few that meet investors' needs. The number of criteria for which traders can screen vary from more than 100 at Fidelity to 43 at TD Ameritrade. Strategy Builder, launched last March by online trading site TradeKing, lets customers construct their own stock screeners, based on dozens of fundamental and technical filters. Once you find stocks that meet selected criteria, you can save the screen and back test its output against up to five years' worth of historical market data, comparing how the screened stocks would have performed vs. any available market benchmark. Users can be alerted daily, weekly, or monthly if the list of stocks that meet their selected criteria changes. Sharing your screens with other TradeKing customers can generate discussion on TradeKing's own forums and spur strategy revisions based on others' input.