What does the Daily Average Revenue Trade (DART) tell me about a brokerage?

By Brent Radcliffe AAA
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.

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