A:

Evaluating the revenues of a brokerage firm has historically involved looking at the commissions that the firm charges clients to execute trades. Daily Average Revenue Trades, or DARTs, is an indicator that allows investors to evaluate how profitable this type of work is. It is calculated as the total number of trades divided by the number of trading days during a given period of time, and shows the typical daily volume of trades that the firm deals with.

Until relatively recently, brokerage firms generated revenue by charging investors a commission for buying and selling securities. The flow of commissions traditionally changed as market sentiment changed, with the amount of commissions earned during bear markets lower than in bull markets because of changes in trade volume. This made revenue projections difficult to nail down, especially in time of economic uncertainty. Today, many brokerage firms focus on asset management services, in which they charge clients a fee for providing financial services. Types of services provided under this model relate to brokerage-owned mutual funds, 401(k) plans, and financial consulting.

Overall commission revenue depends on the number of revenue trades that are executed, as well as how much the brokerage earns from each trade. While firms following a fee-for-service model derive less revenue from commissions, DARTs is still an important indicator of the health of discount brokerage firms that focus on commissions.

A decline in a brokerage firm’s DARTs is not necessarily a cause for alarm depending on how long the decline has lasted. Because commissions generally fall with the lower trade volume associated with bear markets, a decline in DARTs could mean that the market is unhealthy. However, if competitors are not seeing declines in DARTs or if the overall market is considered bullish, a falling stat could indicate further problems with the firm.

RELATED FAQS
  1. How can I prevent commissions and fees from eating up my trading profits?

    First off, understand that there is no universal system regarding trading commissions charged by brokerage firms. Some charge ... Read Answer >>
  2. How can an investor profit from the increase in popularity of discount brokerages?

    Find out how investors benefit when brokerages compete with each other, and how discount brokerages are changing the market ... Read Answer >>
  3. Why are most brokerage firms owned by banks?

    Learn about the differences between investing with a bank-owned brokerage firm or with an independent broker. Get real answers ... Read Answer >>
Related Articles
  1. Investing

    What's a Brokerage Account?

    A brokerage account is a contractual arrangement between an investor and a licensed securities broker or brokerage.
  2. Trading

    Top 10 Brokerage Firms For Day Trading

    Day traders have different needs from long-term investors. Investopedia rates the top 10 brokerage firms for day traders.
  3. Financial Advisor

    Varieties Of Brokers And How To Pick The Best One

    Figuring out what kind of broker to use can be a daunting task. The key is figuring out just how much help you need.
  4. Personal Finance

    How Does Commission Work?

    A commission is the charge that brokers or investment advisors assess in exchange for their services.
  5. Retirement

    The Rise of 401(k) Brokerage Accounts

    Many 401(k) plans now allow participants to trade stocks and bonds by offering brokerage accounts inside the tax-deferred plan. Good idea or too risky?
  6. Financial Advisor

    Understanding Brokerage Fees

    Agents charge brokerage fees for facilitating transactions between buyers and sellers.
  7. Managing Wealth

    The Most Expensive Brokerage Accounts For Traders

    A peek into the brokers whose brokerage charges are higher than average in the stock market world.
  8. Investing

    Opening Your First Brokerage Account

    Learn what steps you should take before you open your first brokerage account.
  9. Personal Finance

    Financial Career Shift: Get In The Driver's Seat

    Before you agree to work for another investment firm, be sure you know what you're getting into.
  10. Investing

    Wrap Accounts: A Gift Of Advice?

    Fee-based accounts were banned in 2007, but a on a practical level, this service remains the same for investors.
RELATED TERMS
  1. Daily Average Revenue Trades - DARTs

    A common metric used in the investment brokerage industry that ...
  2. Brokerage Account

    An arrangement between an investor and a licensed brokerage firm ...
  3. Brokerage Company

    A business whose main responsibility is to be an intermediary ...
  4. Commission

    A service charge assessed by a broker or investment advisor in ...
  5. Payment For Order Flow

    The compensation and benefit a brokerage receives by directing ...
  6. Double Dipping

    For brokerage firms, when a broker puts commissioned products ...
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center