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. What are the fees associated with opening a brokerage account?

    I'm a new investor looking to open a brokerage account. I was wondering if I have to worry about any other service charges ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. How much money do I need to start trading?

    The step towards becoming an active trader is a big one, because the world of active trading is quite different from that ... Read Answer >>
  6. When short selling a stock, how long does a short seller have before covering?

    There are no general rules regarding how long a short sale can last before being closed out. A short sale is a transaction ... Read Answer >>
Related Articles
  1. Managing Wealth

    What's a Brokerage Account?

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

    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. Financial Advisor

    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. Managing Wealth

    Understanding Brokerage Fees

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

    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. Retirement

    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. Financial Advisor

    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 Company

    A business whose main responsibility is to be an intermediary ...
  3. Brokerage Account

    An arrangement between an investor and a licensed brokerage firm ...
  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. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center