What Do Experienced Traders Want?

08/13/2012 12:15 am EST

Focus: STRATEGIES

Fuad Ahmed, CEO of online broker Just2Trade, gives his answers to that question. In the market volatility of the past couple of years, he's seen an increase in covered calls, daytrading, and the use of trailing stops as mechanisms to protect gains.

Kate Stalter: Today, my guest on The Daily Guru is Fuad Ahmed. He is CEO of Just2Trade, a platform for experienced traders.

Now, Fuad, the idea of the experienced trader: that describes a lot of our audience. So what are the particular needs of that customer base that you were not seeing addressed elsewhere?

Fuad Ahmed: Kate, great question. In our case, we define experienced investors as having two years of experience-of trading experience, online. So if you are an experienced investor, you have traded and you have experience of trading online, or you have access to a computer, but you know how a computer functions and also how you can trade. That is what we would define in our case. And having a minimum of $2,500 to open an account.

Kate Stalter: And what were some of the specific needs of that market segment that you really didn't see anybody else serving?

Fuad Ahmed: I think this customer base that we have seen, basically they don't really require a lot of customer service help. They need all the trading tools that are available to them, and if you can offer them a lower commission, that makes a big difference for them. That is what we offer them. Basically a stable trading platform, which is backed by good quality execution, and all of the latest and the greatest trading tools that we offer them.

Kate Stalter: Do they tend to be frequent traders, and one of the things that was appealing to them was a lower commission cost?

Fuad Ahmed: Yes. A lot of these are frequent traders, and some of them may be doing about three to four trades a month. But we tend to track a lot of active frequent traders who tend to use our platform.

Kate Stalter: As we are all well aware, we've just had some crazy, volatile markets over the past one-and-a-half years or so. What has that done in terms of your ability to attract new clients?

Fuad Ahmed: For us, it actually has benefited us in a couple of ways. One, the way the economy has been, customers have become extremely price-sensitive and price-conscious.

Especially active customers who are doing ten, 15, or 20 trades a day, if they are paying $8, $9, or $10 a trade, and they find out, "Hey listen, I can save $5 a trade, and I am doing ten trades a day or ten trades a week, that is a lot of money that I am putting back in my pocket. And that at the end of the day is also going to effect my total return on that investment." They tend to move to those type of firms.

But, the key thing that they are also looking for is: Does this firm offer me the basic few things that I am looking for, and of them, the most important is quality of execution. If I am entering a market order, is my market order getting filled in a second? Do they offer streaming quotes, do they offer charting?

And these are things that we offer. At the end of the day, what customers are looking for is a value proposition, and that is something we offer our customers.

Kate Stalter: From your vantage point, what are some of the strategies that you are seeing traders or investors using to make money in these volatile markets?

Fuad Ahmed: A lot of short-term trading. They are using a lot of ETFs, a lot of daytrades, swing trades, and also using trailing stops, stop orders.

And in particular, in ETFs, we have seen a lot of use of leveraged ETFs. As they tend to fluctuate, there is a lot of intraday movement on those ETFs. But that is something we have seen in the last couple of years, in particular, the way the markets have been.

Kate Stalter: What about the type of assets that people are trading? Are they looking to domestic issues, international issues? Are you seeing purely growth in equities trade? How about the fixed-income side? Across the board, what are you seeing?

Fuad Ahmed: What we have seen is, quarter-to-quarter, definitely a significant increase in options trading, a lot of derivative trading. That has picked up for us.

In addition to that, what we have seen is domestic is still there, and that pretty much dominates the US trading for us, as far as we are concerned. We have seen an uptick in international trading. We do offer international trading at Just2Trade, so we have access to European and Asian markets, as well. We have seen an uptick there.

But primarily what we have seen is an uptick in the domestic trades, but also option trading, in particular for us, has picked up significantly this year as well, and a lot of hedging strategies that customers are using.

So, retail customers have become fairly sophisticated, and I think we offer them all of the tools-trailing stop, stop orders. But that particular area, options, I would say has picked up significantly, and fixed-income trading as well.

Kate Stalter: From where you sit, where you are looking at these trends that are changing, are very dynamic, does that give you any kind of economic outlook or perspective on what you think might be going on out there?

Fuad Ahmed: For this year, as we saw a lot of volatility, we saw a lot of money moving to cash, and in this case, short-term fixed-income instruments. As we started to see visibility, we are starting to see the equity-trading piece picking up.

We are still seeing some hedging, and hedging on the derivative side is covered calls, so we have seen that. That has been all along. We see a good run in the market for a couple of days, but then we see customers writing covered calls and/or selling puts or writing puts.

As we see visibility, which we are starting to-this week is a good example and last week was a good example-so we saw customers doing more equity trading and moving away from hedging, or doing some sort of hedging with a covered call, but focusing more on domestic equity trading and lot of intraday trading as well, and buying some stocks that they feel comfortable holding overnight. That is a trend that we have seen as the market starts to stabilize or the issues in Europe, at least for the short-term, are going behind us.

Kate Stalter: A good stock market does not necessarily correlate with optimism about the economy, but do you see any type of relationship, either correlated or not, in that regard?

Fuad Ahmed: Yeah. What you do see is, historically, if you look at it, a good equity market is an indicator that things are going to get better.

I think in this case what we are looking at is: We saw some trends in Europe last month where the ECB is coming back and is coming out, and they are starting to offer some visibility. Greece still doesn't make sense, again we don't know if it is going to part of euro or not, but it looks we are starting to see a little bit of visibility in Europe.

Then we are seeing visibility in the US, as far as housing starts are concerned. Unemployment, the numbers are concerned, that came out last week as well. Consumer confidence and, above all, earnings that came out this quarter as well. About 70% of S&P 500 companies beat analysts' estimates-although those estimates were lower-but they did beat those estimates.

I think you have to look at all of these trends, and they are pointing to a positive third quarter initially at the stage where we are. I think that is what the market is indicating.

Related Reading:

https://www.moneyshow.com/articles/OptionsIdea-28835/3-Ways-to-Profit-Using-Covered-Calls/

https://www.moneyshow.com/video/VideoNetwork/100/5457/Hedging-Your-Portfolio/

https://www.moneyshow.com/articles/regBook-26768/Short-Term-and-Intraday-Trading/

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