NEW YORK — OptionsHouse Inc., a Chicago-based online retail broker, late last month became the most recent firm to add a virtual options-trading tool to its website. The motivation for the online upgrade is unsophisticated investors who are interested in trading options but wary because they do not understand them.
“It is, of course, in no one’s best interest to have an inexperienced investor tanking at the start; our virtual trading system allows them to get comfortable with our platform at their own pace,” said Danny Rosenthal, chief executive of OptionsHouse. “It’s the perfect training tool — as powerful and elegant as the real thing but without the worries associated with risking your own money. Clients place at risk virtual money, rather than the real thing, and can practice placing virtual orders, monitoring fulfillment, tracking their account performance and taking advantage of educational resources, as well as
risk management tools.
OptionsHouse, which began offering trading in January, provides a virtual $5,000 when traders sign up for an account. A handful of competitors — including optionsXpress Holdings Inc. and thinkorswim Inc., both of Chicago, and Charles Schwab & Co. Inc. of San Francisco — provide the same amount of virtual money and similar tools to their clients. Virtual trading can be accessed through the web at optionshouse.com.
In the four years it has offered virtual trading, optionsXpress has built a clientele of more than 100,000 individual investors who are active traders.
‘Educated investor’
David Kalt, chief executive of optionsXpress, offered a similar rationale for rolling out the service to that of Mr. Rosenthal.
“A more educated investor is a better investor over time. There’s no real gimmick behind it. So much of success in trading comes down to practice and trading. Actually pulling the trigger and seeing the impact on your portfolio is critical,” he said.
Because options and futures trading can be technically challenging, even experienced traders prefer to test new strategies before they execute trades. “Even old hands that are interested in conducting more-advanced transactions like covered calls find it very useful to try [them] out on the virtual side first,” Mr. Kalt said.
For two months, Robert Malesardi, an active trader and longtime business owner in Palm Beach, Fla., has been a customer of OptionsHouse, where he trades options on a daily basis. “Their system is unbelievable. It’s all done electronically. My account is updated every minute,” he said.
Mr. Malesardi started out trading through Merrill Lynch & Co. Inc. of New York some 50 years before, with his college roommate serving as his broker. While he had been satisfied with the broker he was using — his former roommate died several years earlier — the cost savings through OptionsHouse were too substantial to pass up.
While Mr. Malesardi expressed his view that online discount brokers’ offering such services is indeed a trend, Mr. Kalt said they are no threat to investment professionals.
“There is too much of a value-add there. This definitely doesn’t make the full-time broker obsolete,” Mr. Kalt said. To bolster the argument, he went on to discuss the possibilities represented by sister firm brokersXpress LLC.
It is meant for registered representatives, financial planners and registered investment advisers, especially those who trade options and shares with the same technology that powers optionsXpress. The technology allows brokers to work one-on-one with customers.
Through brokersXpress, the financial adviser opens the account and provides the client with a login and access, though both parties are able to see the account activity.
