Table Of Contents

    Key points

    It seems like Fox Mulder and Goldman Sachs share at least one more thing in common: they both want to believe. When the poster child for capitalism questions out loud whether or not capitalism actually is working as it should, there is definitely something paranormal happening. Canadian and US discount brokerages alike also want to […]

    It seems like Fox Mulder and Goldman Sachs share at least one more thing in common: they both want to believe. When the poster child for capitalism questions out loud whether or not capitalism actually is working as it should, there is definitely something paranormal happening. Canadian and US discount brokerages alike also want to believe that the recent downturn in stocks won’t spook investors.

    In this week’s roundup we take a look at two sides of the race for dominance in online trading. Starting first with the most recent discount brokerage deals and promotions to emerge in the race to the RSP contribution deadline. From there, we take a look at the recent performance of the US online brokerages to gauge whether investors are trading more or less as a result of the recent market volatility. Next we’ll review the upcoming investor education events and then take a look at what DIY investors were talking about on Twitter and in the investor forums.

    New Month, New Deals

    A big story at Canadian discount brokerages this year continues to be the fierce competition to provide incentives and promotions to DIY investors.

    In the initial week of February, Virtual Brokers stepped into an already crowded deals and promotions arena bringing the number of advertised promotions to 18 with an offer that pitted it clearly against Questrade’s recent success with the Apple watch (i.e. Apple store gift card) promo.

    Although Virtual Brokers’ promotion is not exactly the same, it has many popular elements as their cross-town rival.

    First, it has a tiered deposit structure so that the more a client deposits, the greater the reward. In this case, the reward is commission-free trades ranging from 25 (minimum deposit required: $15,000) through to 200 (minimum deposit required: $250,000).

    Under their new “classic” commission pricing structure of $9.99 per trade (flat) this equates roughly to just under $250 to and $1998 in value (depending on the deposit).

    In addition to the tiered offer, Virtual Brokers has also paired the tiered offer with an entry to a contest to win a $500 Apple gift card (which can be used towards an Apple watch for example). Previously, Questrade was the only Canadian discount brokerage leveraging the Apple watch as part of its promotional mix.

    What is interesting about Virtual Brokers’ latest promotion is that it sets the deposit bar far higher than Questrade does in order to qualify for a modest incentive (VB’s deal requires $15,000 minimum whereas Questrade has 6 offers requiring $5,000 or less). That means the barrier to qualify for a promotion is much higher than with Virtual Brokers than with Questrade.

    Another interesting observation is that with Virtual Brokers now in the deals arena there are only 4 online brokerages without some kind of publicized deal for DIY investors: CIBC Investor’s Edge, Interactive Brokers, Qtrade Investor and RBC Direct Investing.

    Distribution of current discount brokerage deals & promotions (as of February 5, 2016)

    That said, Interactive Brokers does offer a referral bonus (that benefits the referrer not so much the referee) and Qtrade Investor is running an RSP contest, however unlike in previous years, CIBC Investor’s Edge and RBC Direct Investing have yet to step forward with any major offers.

    As the month progresses, competition should continue to heat up. As most of these offers show, however, many of the deadlines for these promotions fall after the RSP contribution deadline of February 29th which means that while there are some limited-time offers, there’s still plenty of selection for those that are looking to see what else pops up.

    A Volatile Combination

    Volatility may bring opportunity, but many DIY investors in the US pulled back on their trading in the most recent quarter. With the exception of one brokerage, most of the publicly traded US online brokerages saw less activity in the face of global equity volatility and crude oil in freefall.

    One of the key indicators of that trading activity, known as “daily average revenue trades” (DARTs), saw quarter over quarter (QoQ) and year over year (YoY) declines across the board. DARTs specifically measure the total number of trades over trading days in a given period.

    According to recent earnings releases from key players in the DIY brokerage space, including TD Ameritrade, Charles Schwab, and E*trade, retail traders were marginally less involved in recent swings. Out of all the discount brokerages researched, E*Trade showed the worst performance DART wise (displayed below) and on the new accounts front. New accounts for E*Trade tumbled 34% YoY, the firm is leading in alternative measures of client engagement however.

    A key trend in two of the biggest discount brokerages was the client utilization of mobile apps for trading.

    E*Trade indicated 14% of their 2015 DART volume was done on a mobile device. Similarly, TD Ameritrade set an internal record of 18% DART volume from mobile. Mobile trading will be a key variable for all online brokers going forward, as it represents a new age of engagement and functionality.

    Ideally, the optimal combination for an online brokerage would be increasing DART volume while seeing increasing client account equity. This would indicate clients are engaged with the firm’s services and keen on putting capital to work. Fortunately, this was the case for Interactive Brokers, where customer equity was up 19% YoY with 4% DART growth vs 2014.

    Interactive Brokers was also the clear winner new assets wise, while E*trade, TD Ameritrade and Charles Schwab found it harder to grow assets. Interactive Brokers Group stood out as their clients embraced their cutting edge technology and ramped up their activity (and equity) in the face of volatility. Of course, Interactive Brokers is certainly smaller than their peers so percentage growth can mask the difference that scale and size have on the ability to show positive growth.

    Nonetheless, the trading habits at these particular firms show that the active traders are drawn to the volatility whereas many of the less or moderately active investors tend to step back and let the dust settle. For many DIY investors currently watching the Canadian markets, as well as several Canadian online brokerages there seems to be a growing hope that the dust settles sooner rather than later.

    Event Horizon

    What better way to beat the cold this month than to huddle up for an investor education seminar or webinar. Coming up this week are sessions on Technical Analysis, Registered Accounts, ETFs, Options and avoiding common trader pitfalls – and that’s all before Wednesday!

    February 9th

    NBDB – Introduction to Technical Analysis – Oscillators – [Fr]

    TD Direct Investing – Building Wealth Through Registered Accounts

    Scotia iTRADE – Top Mistakes Made by Investors with Pro Market Advisors

    Desjardins Online Brokerage (Disnat) – Meet the 18-30 Broker@ge Team at 360d

    February 10th

    TD Direct Investing – Building Wealth Through Registered Accounts

    Desjardins Online Brokerage (Disnat) – Discover the Benefits of the TFSA

    NBDB – Equities and ETFs – [Fr]

    RBC Direct Investing – The ETF Selection Process: Navigating the ETF Landscape – RBC Global Asset Management

    February 11th

    Scotia iTRADE – Options Trading: Myths versus Reality with Montreal Exchange

    TD Direct Investing – Advanced Options

    Discount Brokerage Tweets of the Week

    DIY investors on Twitter paused to take a breath after a wild start to this year’s trading activity. Mentioned this week are CIBC Investor’s Edge, Credential Direct, Questrade, Scotia iTRADE and TD Direct Investing.

    From the Forums

    Asset A Location?

    One of Canada’s largest online brokerages, TD Direct Investing, was the focus of this post on the Reddit personal finance Canada section. In particular, one user was curious to know why there was so much ‘in person’ activity required for an online investment.

    Year Right

    In this post from Canadian Money Forum, Interactive Brokers’ RSP contribution feature was a cause for confusion because it required individuals to select the tax year for the contribution to apply to. Read on to find out more about how this issue was finally resolved.

    Into the Close

    That does if for this edition of the roundup. Whether you’re gearing up for the “big game” this weekend or simply looking to take advantage of the ‘bad break’ in the markets – have a super weekend! For all the readers in BC, happy Family Day long weekend!