Moving to a New Trading Platform – Part 2
by Patrick Oberhaensli, on Feb 23, 2021 10:00:00 AM
In the second part of our “Changing a Trading Platform” article series, we will focus on the most important criteria when selecting a trading platform. As mentioned in our previous discussion, an appropriate comparative analysis can help to overcome common cognitive biases. Switching your trading platform could be worth it, not only from a cost perspective but also to support a better risk-adjusted-performance.
What makes an advantageous trading platform?
We have listed below the most important criteria to examine when deciding to change your trading platform. Of course, this means that you, as the investor, need to first get a sound understanding of your own requirements starting with your current objectives and constraints (the Investment Policy Statement or IPS) as well as the implemented portfolio – or better, the portfolio as it should be (and that might be different)!
Once you have done this, you can start your analysis by using information found on the website of the trading platform provider as well as the (extensive) use of a demo account – which gives you a tangible experience to test the features yourself.
- Trading platform security (high priority): There are 2 levels to consider here. First, the credit quality of the provider and the security of the platform itself. For the trading platform to be at the same time a bank is certainly an advantage but if that bank has a high rating it is even better.
- Trading platform ease and comfort of use: Of course, traders need a platform which is ergonomic given that you need to be able to trade from anywhere, via a computer, laptop, tablet, or smart phone. Are there platforms out there that don’t offer device compatibility? Yes, there are often differences in the level of compatibility and ease of use, but these functionalities need to be “tested” and “discovered” – the best way to do this would be to sign up for a demo. When you are testing the trading platform, take note of the way orders can be placed (i.e., the type of orders) and the level of service during the execution.
- Trading instruments offered: Evaluating the products offered, for example with the Contract-For-Difference (CFDs) or Over-the-Counter options, you should consider your investment goals. In the case of the CFDs, ideally, they should cover a very large palette of single stocks and equity indices (regardless of if you need them right now or in the future).
- Trading signals offering (typically an extra-service): A trading signal service is highly valuable for positioning your investments on the preferred market, and therefore it is clearly a differentiating offering. Now, you need to perform an analysis / due diligence beforehand, especially a quantitative one that will allow you to evaluate the risk-adjusted performance (up to a certain point). You should examine the operational aspects, and the practical comfort of use and the implementation of the signals are also important to consider
- Total costs: For an investment portfolio with a multitude of different types of instruments, the cost analysis can be quite complicated. Here is a selection of costs that could be applied (partly) depending on the provider:
- Account and custody: Normally trading accounts do not have a cost, but it still needs to be verified depending on the provider. Now, when it comes to custody (of the securities), there are potential custody fees for securities such as stocks and bonds.
- Contract-For-Difference (CFD): Contrary to stocks, CFDs allow traders to get a short exposure but for both long and short exposures the costs can be quite material. So, you should for example consider the average holding period and calculate the estimated cost.
- Costs for not trading! Have a look at the minimum required trading activity. Even though, as an active trader it should be relatively easy to avoid these costs!
- Specific matters “securities lending”: Among the specific matters, there is the question of securities lending. The trading platform provider may automatically include in their terms and conditions the possibility to borrow securities in the client’s account. This is something you may not want, given the associated risk (in case of bankruptcy) – especially if the earned fee is very small.
Beyond the trading signal service, platforms today typically don’t yet support the investor in an advanced manner. That’s actually where Artificial Intelligence (AI) could really make a change. The main use for AI in trading platforms is of course improving trading signals. But other possible areas include influence on trading instruments (Actively Managed Certificates or AMC for example for an AI driven strategy), offer possible ways to lower the costs through smart suggestions, advanced trading orders that can better predict scenarios (for example changing correlations), and much more!
Deciding if you should change your trading platform is something that investors should consider on a regular basis to find out if their current situation is the optimal one for their investments. Technology is rapidly advancing and so are trading platforms – one of the key reasons to observe the varying offerings closely: but there are still a lot of improvements possible, and AI will certainly play an important role in the future.
EVOLIDS FINANCE LLC, Disclaimer:
- This content is not intended to be a solicitation nor an offer
- The preparation of the information provided herein is done with a high level of care. Nevertheless, errors are possible