If you like what we do here, please click on our sponsor's banner and check out our store. Thanks!

After studying economics and Mandarin Chinese at the University of Michigan, A. G. Huston decided to travel to Taiwan after his graduation. He eventually landed a job as a currency trader. After this, he worked at a trading desk in London and then Tokyo. In 1995, Huston decided to return home -- by joining an institutional brokerage firm, A.B. Watley, Inc.

Even though the company has been in existence since 1958, it had a rebirth in the 1990s -- riding the wave of technology sweeping the brokerage industry.

Practically from scratch, this company -- which focused primarily on institutional trades -- went head-long into the retail brokerage industry.

From its Web site (www.abwatley.com), you can buy and sell stocks, options and index options. You can even do short sells (which means you are betting the price of the stock will fall). However, you must speak with a representative to purchase mutual funds, Treasuries, munis and corporate bonds.

To trade listed stocks (such as on the New York Stock Exchange), you will pay only $14.95. If you want to trade OTC (Over the Counter), then the fee is $19.95.

Interestingly enough, if you trade 3,000 or more shares, this will be routed to the institutional trading desk at A.B. Watley, where a professional trader will execute your trade at $25.95, plus 2 cents per share. True, these are not rock-bottom commission rates.

In fact, some discount brokers make claims that you will not pay any commission on orders over 1,000 shares. But in reality, these brokers are making money. How? It is done by the spread between the bid and ask. For instance, if a spread is 1/4 of a point on a 1,000 share trade, the profit for the broker is $250.

Yes, there is no "free lunch." Well, A.B. Watley does not charge for a spread. Instead, it takes a straight commission. Not only does A.B. Watley provide comprehensive trading services, but also quote information:

• Portfolios: Thus, you can keep track of your current holdings, as well as create hypothetical portfolios.
• Customizable Charts: You can create line, bar and even candle stick charts.
• Major Market Information: You can see the most actives, the highest/lowest movers, as well as government bond yields. There is also information on major foreign country quotes.
• Company News: You can retrieve PR Newswire and BusinessWire stories on your favorite companies.
• Quotes: Besides getting real-time quotes on stocks, you can also retrieve the latest prices of mutual funds and options.

There is also a tremendous amount of research material, such as:

• First Call Earnings Estimates (covers 5,400 companies).
• Lipper Reports (analysis of mutual funds).
• Standard & Poor's Stock Reports (covers 4,000 companies)
• Standard & Poor's News Headlines
• Standard & Poor's Industry Reports
• Vickers Insider Trading (shows when a company's insiders--such as directors, major shareholders, officers--are buying and selling stock).
• Wall Street Whispers (daily digest of market analysis from newsletter writers).
• Argus Company Reports (has buy, hold and sell recommendations on over 300 companies).
• Renaissance IPO Reports.

But the coolest technology from A.B. Watley is its software package called the UltimateTrader. NASDAQ (National Association of Securities Dealers Automated Quotation) provides three levels of information on the OTC market:

• Level I: This gives the broker access to the current bid and ask prices of OTC stocks.
• Level II: This provides the bid and ask prices--as well as the shares offered--from market makers. A market maker is a firm that owns an inventory of securities. The market maker will generate profits on the spread between the bid and the ask--which can be quite lucrative. In fact, many discount brokerage firms are affiliated with market makers (PCFN, for example, has DLJ).
• Level III: This has the services of Level I and II, but also allows the market maker to place bid and ask prices.

UltimateTrader gives you access to Level II quotes. In other words, you have the same access that many top Wall Street institutional traders have.

So far, there is nothing like this on the market. UltimateTrader is a Windows application and runs on both Win95 and NT (not 3.11). Moreover, you will need 32 MB of RAM, a Pentium computer and a 28.8 baud modem.

The software uses "push" technology to dynamically send the most up-to-date information to your desktop. On the screen, you will see a list of market markers--such as Lehman, Merrill Lynch or even DLJ--who are offering bid and ask price. To execute a trade, all you do is double-click either the bid or ask and a dialog box will appear. Press the confirm button. You will then get a confirmation of the trade--in some cases, in a matter of about four seconds.

This service is geared for active traders--who want to see how the markets are moving and be able to react in real-time to the swift changes. A.B. Watley's system has servers in three distinct and separate areas--just in case there is an electronic failure. Also, this tends to lessen the bottlenecks in the network.

You can connect the UltimateTrader through an ISP connection. However, this can be quite slow.

But A.B. Watley has its own Virtual Network. This is a proprietary backbone that is faster and more reliable than an ISP connection and
completely bypasses the Internet. The Virtual Network involves fewer "hops" (which are the number of relay points a packet of data must travel). The Virtual Network can be accessed via 200 area codes. The cost is about 8 cents per minute.

If you are not in one of these area codes, you can use a toll-free number. The cost is 11 cents per minute.

According to Huston, the typical stockbroker should be "scared." If a stockbroker only provides execution of trades, he or she will be killed by low-cost online alternatives. In fact, he says the smartest move Merrill Lynch made several years ago was to focus on asset management. This basically means that the broker will charge a flat fee for assets under management. Thus, there is no incentive for the broker to churn accounts. Instead, the broker is motivated to provide for maximization of return. However, to justify this fee, the broker must provide financial planning services--such as tax, estate, retirement, and college planning.

In fact, Huston says his firm wants to get into the asset management market. But, of course, his company will make sure it fully uses online technology.