Options Monster's  Instablog

This guide will help you understand the best established websites offering alternative ways of investing, trading and speculating. From new forms of funds, to exotic derivatves or private equity, we take a look at the way each of these sites can upgrate your investment portfolio with innovative strategies, whether you are a conservative investor or an aggressive speculator.

Covestor.com

Securities: Liquid stocks

Characteristics: Like a mutual fund

How it works: Covestor allows stock investors (not you) with a 1 year minimum track record to open a model (equivalent to a fund) that will be tracked trade by trade by your account. You can look at the complete performance of each model and have your brokerage account mirror the trades of the model managers of your choice.

Fees: Free to register. 0.50% - 2.30% (depends on the model) per year + brokerage trading fees.

Pros: Automated trades. Extremely transparent, invest from your existing account, easy to set up, easy to research models, easy to invest in and out of models, reliable site, great model managers.

Cons:There is inevitably a lag between the time a model manager executes the trade and the time it is executed in your account; which makes day trading models less reliable. Some models require a minimum allocation of $50,000 (the lowest minimum per model is $5,000)


YoutualFunds.com

Securities: Stocks

Characteristics: Like a mutual fund or a hedge fund

How it works: Like on Covestor, users (not you) create models (called Funds on the site) that you can invest in. The main difference with Covestor is that YoutualFunds models are run in virtual capital (all funds start with a $100 par value); but investing in it will require the minimum capital equivalent to the minimum denominator of the fund's total share holdings.

Fees: $29.95/month plus broker trading fees.

Pros: Ability to short funds. Automated trades. Over 1000 funds to choose from, wide array of trading and investing strategies, good model search functions and statistics.

Cons: Trade execution lag, a lot of very volatile funds, limited trading tools for fund managers translate in higher risk for investors (fund managers can only enter market orders). Limited fund manager transparency (most fund managers are anonymous users). 


Collective2.com

Securities: FX / Futures / Stocks / Options

Characteristics: Like a hedge fund (black box investing)

How it works: Similar to YoutualFunds and Covestor, you can track the performance and strategies of almost 1000 models and invest along them either by subscribing for a trade signal alert or by having your brokerage account replicate the trades automatically.

Fees: Free to sign up. Model subscription fees varies by models. Many models only charge a fee if profitable. 

Pros: The site carries some excellent models with phenomenal track records. You can decide to invest in funds with all available asset classes, or pick the asset classes you want to include or exclude in your model selection.
 
Cons: Fees can be high on some models.



InTrade.com

Securities: Events

Characteristics: Event based trading / binary betting

How it works: InTrade allows you to create a bet or participate in existing bets, whether an event will occur or not  in almost all aspects of life (for example: 
"Will Obama be reelected in 2012?"; or "Will DOW close down 100 points from previous close?"; or "NASA to announce existence of extraterrestial life before 2012?", etc...). A bet either pays $0 or $10, and you can take either side of the bet either at "market price" or at your price and size (will only enter into effect if someone takes the other side of your bet at your price). 

Fees: $4.99 per month

Pros: A large variety of bets allows you to create complex betting and hedging scenarios. Possibility to trade out of a bet. 


Cons: All or Nothing payout, large spread on many bets.


LendingClub.com

Securities: Loans

Characteristics: Fixed Income notes

How it works: You make loans to pre-screened individuals (strict requirements) needing cash for a specified reason (debt reconsolidation, medical bill etc...). You can fund a loan in full or partially and create a portfolio of short term notes (up to 5 year loans). Your identity remains private and in case of default, LendingClub takes care of sending the debt to a collection agency.

Fees: Free to sign up. 1% of all amounts paid by borrower.

Pros: Easy to invest. Extremely detailed information on borrower (and on collection efforts in case of default). Competitive risk adjusted returns. Possibility of trading out of your notes (through FOLIOfn)

Cons: Lenders also have to meet some criterias (income, networth and state limitations)


Prosper.com

Securities: Loans

Characteristics: Fixed Income notes

How it works: A competitor of LendingClub, Prosper also offers you the possibility to lend money to pre-screened individuals. 

Fees: Free to sign up. 1%

Pros: Easy to invest. Competitive returns (some higher risk profiles than on LendingClub). Possibility of trading out of your notes( through Folio Investing).

Cons: Lenders also have to meet some criterias (income, networth and state limitations). Less detailed information and analytical tools than on LendingClub.

SharesPost.com

Securities: Private Equity

Characteristics: Mostly tech stocks

How it works: You can invest and buy shares of a lot of hot private tech companies (Facebook, Twitter, Yelp, etc...) from investors or employees looking to cash out, or directly participate in private offerings. The site offers a lot of information regarding past transactions, round valuations and other good research.

Fees: 3% or $5,000 (whichever is greater) plus a $1,500 bank charge.


Pros: Allows you to invest in potentially hot stocks before they get publicly listed at insane valuations (ie: see what valuations LinkedIn, Zillow or Pandora traded at on their IPO). 

Cons: You need to be an institutional or a high networth investor. The transaction can take time given that you need to open an account through their affiliated broker and compete for the equity in an auction setting. The transaction is expensive and the equity is illiquid.


EZTrader.com

Securities: Binary Options

Characteristics: All or almost nothing

How it works: EZ Trader allows you to speculate on which way the price of an index, commodity, exchange rate or stock will have moved from the time of trade entry till a preset time frame. All you have to do is decide whether a specific security will move up or down by the end of the hour, or by the end of the trading day, or by the end of the trading week. If your prediction is correct, you make anywhere from 61% to 91%. If you're wrong, you lose 95% of your speculated capital. Depending on the current price of the underlying, EZTrader gives you the choice of trading out of your position before its expiration.

Fees: None

Pros: Easy to trade, immediate payout, deposit bonus (at specific threshold), no trading or settlement fees. Ability to exit a trade before it expires.

Cons: High risk. Limit of $3,000 per line of trade. 


Nadex.com

Securities: Binary Options

Characteristics: All or nothing

How it works: Nadex offers a different approach to binary options than EZ Trader does. You speculate on preselected stock indices, commodities, forex, economic data and strike prices at various hourly, daily or weekly expirations. Additionally, you can trade in and out of these binary options on its exchange and build spread strategies. These options pay either $100 or nothing.

Fees: $0.25 - $0.90 per contract trade; $0.25 - $0.90 per contract settlement.

Pros: Capacity to speculate on economic data and the market through the same platform. 

Cons: High Risk. Large spread. Requires some understanding of options.





Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.