TradeStation Group, Inc
TradeStation Group, Inc.
8050 SW 10th Street, Suite 4000
Plantation, Florida 33324-9843
Telephone: (954) 652-7000
Toll Free: (800) 556-2022
Fax: (954) 652-7300
Web site: http://www.tradestation.com
Incorporated: 1982 as Omega Research, Inc.
Sales: $96.99 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: TRAD
NAIC: 523120 Securities Brokerage
TradeStation Group, Inc., is an Internet-based securities brokerage company operating through its primary subsidiary TradeStation Securities, Inc., a licensed securities broker with more than 25,000 accounts. The company caters to institutional and professional traders as well as serious individual traders, providing them with its flagship state-of-the-art TradeStation electronic trading platform, the core of which has been a staple of the securities industry since its introduction in the early 1990s. Originally designed as an intelligent trading assistant, the TradeStation platform is now able to execute orders in addition to giving users the ability to develop and test trading strategies, then implement, automate, and monitor them. A second operating subsidiary, TradeStation Technologies, Inc., offers the company's trading strategy capabilities, either by subscription or a software license. TradeStation is a public company listed on the NASDAQ. About half of the shares are controlled between the company's cofounders and co-chief executive officers, brothers William and Ralph Cruz.
Rather than dreaming about becoming entrepreneurs, the Cruz brothers grew up in Miami with aspirations of becoming classical musicians. However, the older of the two, William, became fascinated with commodities trading during high school, and as soon as he was old enough he opened an account. He got his brother, three years younger, involved and together they proceeded to lose all the money they had in commodities. Fortunately they were talented enough musicians to both receive full scholarships from the University of Miami to study classical violin. William went on to attend the renowned Juilliard School in New York, and later Ralph enrolled at the music program at the University of Indiana, but he dropped out to join his brother in starting a company in 1982 called Omega Research, Inc., based in Miami. William would focus on product development while Ralph spearheaded the company's marketing strategies.
Disappointed with their fling as stock traders, essentially throwing darts and hoping they hit the target, William Cruz decided to develop an analytical software program for commodities traders. According to Futures, he "set out to conquer a computer programming problem few others thought could be solved: how to create software that would allow a nonprogrammer to describe a trading system and backtest it quickly." The heart of the challenge was to allow for elaborate trading strategies, which required increasingly complex algorithms, while keeping the system easy enough that a nonprogrammer could use it. Omega hired three programmers to tackle the problem, and several years later, in December 1987, the company demonstrated System Writer.
System Writer was impressive but possessed a number of bugs and limitations. The programmers were put back to work, and in 1989 they completed a refined version of the system, System Writer Plus, with flaws fixed and enhancements suggested by users added. These included simpler programming language used to describe a trading system and the capability to create charts. The charts allowed users to easily test their systems. According to Futures, System Writer Plus "solved the problem of how to test trading ideas efficiently and easily on past data to weed out inherently bad concepts.… Unfortunately, the system creator's ultimate goal is not to make paper profits of hypothetical historical trading but real profits in real-time trading." The fulfillment of this aim would have to wait for the next incarnation of the system, which would take the name TradeStation.
LAUNCH OF TRADESTATION
Launched in 1991, TradeStation was the first real-time program that graduated from charting tool to an intelligent trading assistant. A year later the product was supplemented by SuperCharts, a robust charting and analytics software application. TradeStation could understand English-like statements, so users did not need to know arcane programming language. More importantly, once the user established conditions TradeStation would monitor the markets and determine buying and selling opportunities as they became available. In a 1992 review of the product, Futures offered an example of how this worked: "You're tracking a five-minute S&P chart and want to buy whenever the three-period moving average crosses above the nine-period moving average and the Relative Strength Index is under 30. That might be a simple technique, but with conventional real-time software you'd have to spend the day staring at your S&P chart, patiently waiting for your conditions to be met. With TradeStation, however, just type a few keys to describe this technique.… Your PC will now do the monitoring for you."
Initially TradeStation was mostly sold to individual investors. To make inroads with institutional customers, in 1994 Omega reached a licensing agreement with Dow Jones Telerate, Inc. to make TradeStation available to institutional customers around the world, providing Omega with a steady stream of royalty payments. This premium service became available in 1996, the same year that Omega unveiled a new product targeting options trading called OptionStation. Like TradeStation, it allowed users to test their options trading strategies. The Omega platform was also able to incorporate third-party software applications. By this point about 150 independent developers had produced compatible software applications for the platform.
Omega recorded revenues of $9.4 million and net income of $3.3 million in 1995. Those numbers virtually doubled in 1996, to $17.8 million in sales and more than $7 million in earnings. The company deemed the time was right to make an initial public offering (IPO) of stock, and so in October 1997 an IPO was conducted, netting $27.4 million for the company and another $12.8 million for selling shareholders. Omega shares began trading on the NASDAQ, where they did not fare especially well. In less than two months the stock lost more than half its value, this despite the company exceeding the earnings target in its most recent quarter. Part of the reason was the limited size of its customer base, the small number of institutional investors and individual investors willing to pay $2,400 for TradeStation.
We believe TradeStation Group, Inc. has a significant advantage in the institutional, professional and serious, active trader markets.
Omega enjoyed another strong year in 1997, posting revenues of $29.9 million and net income of $8.8 million, but business tailed off in 1998, when revenues dipped to $28.2 million and earnings fell to $2.6 million. Omega offered another software application in 1999, RadarScreen, a product that allowed a trader to sort through thousands of securities in order to uncover buy and sell opportunities based on inputted parameters, but this was in essence more of the same and it had been clear for some time that Omega would have to broaden its horizons. One obvious way was to make use of the Internet, where individuals were buying and selling stocks through newcomers E*Trade and Ameritrade and old-guard firms such as Charles Schwab and Fidelity. Omega elected to modify its business model, evolving from a developer of trading strategy software to an online brokerage firm offering the most advanced trading platform. There was no shortage of direct-access trading brokerages interested in joining forces with Omega. The first step in the transformation came in October 1999 when Omega acquired Window on Wall Street Inc., a leading provider of Internet-based streaming real-time data. This led to the 2000 launch of Windows OnWallStreet.com, Omega's first Internet offering, a charting and analytics service. In January 2000 Omega acquired OnlineTrading.com to gain the electronic order execution technology and a company that catered to high-net-worth individual, professional, and institutional traders. OnlineTrading.com became the foundation of TradeStation Securities, Inc. The order execution technology was wedded to Omega's TradeStation capabilities to produce a state-of-the-art intelligent, direct-access trading system called TradeStation 6, introduced in 2000 and made available to institutional and active traders in 2001. It received a warm welcome in the marketplace, named the top Direct-Access Broker by Barron's and the best Stocks Direct Access Brokerage by Stocks & Commodities.
ADOPTION OF TRADESTATION
To help build TradeStation into a valuable brand, Omega Research changed its name to TradeStation Group, Inc. in 2001. The company also began to look to move its headquarters out of Miami. A number of cities began offering incentives to TradeStation to relocate to their communities, including Richardson, Texas, where the company operated a branch office. In the end, TradeStation elected to move to Plantation, Florida, in nearby Broward County. Plantation offered $500,000 in incentives, and TradeStation committed to providing 100 jobs, which paid an average wage of $50,000.
The transition from software provider to online broker was not smooth, however. After reaching $53 million in 2000, revenues slid to $41 million in 2001, due mostly to the discontinuation of client software products. The expense of the conversion also led to mounting losses: $4.3 million in 1999, $12 million in 2000, and $17.2 million in 2001. Licensing fees and subscription fees continued to decline in 2002 but were more than offset by a significant increase in brokerage revenues, which more than doubled from $18.6 million to $38.5 million. As a result total revenues improved to $48.4 million and the company returned to profitability, netting $1.8 million.
TradeStation 7 was introduced into the market in 2003. The new incarnation of the company's flagship platform offered the direct-access electronic execution of futures trades. Once again the company received accolades for its service, as Barron's in 2003 named TradeStation Securities the "Best Broker for Active Traders." Also in 2003 TradeStation Securities began offering forex analytics and execution services. With these additions, TradeStation was able to continue to grow the balance sheet. Brokerage revenues continued to expand at a strong rate, leading to an increase in total revenues to $60.1 million, while net income soared to $11.6 million. By the end of the year TradeStation Securities was serving 12,000 accounts.
Barron's again named TradeStation Securities the "Best Broker for Active Traders" in 2004. In addition, the company won Stocks & Commodities Readers' Choice Awards for best Direct-Access Stock Brokerage, best Direct-Access Futures Brokerage, best Institution Platform, and best Professional Platform. The company also unveiled the latest update of its flagship platform in 2004. TradeStation 8 added the direct-access electronic execution of options trades to its capabilities. The number of accounts served by TradeStation Securities increased significantly in 2004, to 18,300, about a 50 percent jump over the number of accounts at the end of 2003. Brokerage revenues increased by more than $10 million over the previous year and subscription fees enjoyed an uptick to $8.1 million. Net revenues, as a result, increased to $71.8 million on the year and net income improved to $14.7 million.
In 2005 Barron's changed the way it rated online brokerage firms. It gave TradeStation Securities a rating of 4½ stars, the highest rating received (along with a handful of other online brokerage firms). The company would receive the same rating in 2006 as well. The company's sterling reputation undoubtedly helped TradeStation Securities to continue to build its number of brokerage accounts, which grew to almost 24,000 by the end of 2005. While subscription fees were flat, escalating brokerage fees continued to fuel the growth of TradeStation. Net revenues totaled $97 million in 2005 and net income topped $21 million.
- Company is founded as Omega Research.
- Company goes public.
- TradeStation platform is launched.
- Window of Wall Street Inc. is acquired.
- Company changes name to TradeStation Group, Inc.
Business continued to improve at a strong clip in 2006. Halfway through the year the number of brokerage accounts approached the 29,000 mark, and revenues were well on their way to cracking the $100 million threshold. With the company taking steps to improve institutional services and launch international trading, the future appeared bright for TradeStation.
TradeStation Securities, Inc.; TradeStation technologies, Inc.; Omega Research Corporation.
The Charles Schwab Corporation; E*Trade Financial Corporation; TD Ameritrade Holding Corporation.
Babcock, Bruce, Jr., "System Writer Plus," Futures, June 1, 1989, p. 8.
Garcia, Beatrice E., "Miami Software Firm's Transition to Online Discount Broker Cuts into Profits," Miami Herald, November 25, 2000.
——, "Plantation, Fla., Company Morphs from Software Firm into Online Brokerage," Miami Herald, September 8, 2002.
Graham, Jed, "Omega Aims to Add Trading to Its Stock-Picking Software," Investor's Business Daily, December 14, 2000, p. A10.
"Omega Research: TradeStation Makes the Leap from Charting Tool to Intelligent Trading Assistant," Futures, July 15, 1992, p. 18.
Reeves, Scott, "Good Products, Tough Market," Barron's, September 22, 1997, p. 55.
Vogel, Mike, "A Tale of Two Online Entrepreneurs," Florida Trend, August 2005, p. 62.