A volatile stock market, stay-at-home restrictions, and some spare time have added up to a trading boom for online brokers. Many of them are reporting record trading activity and new accounts, and many tell us that logins from mobile devices are up significantly--35-50%-- over last year.
Retail investors, encouraged by commission-free equity trading, are closely monitoring everything that affects their portfolios. The markets swing from all-time highs to bear territory, then back again following aggressive activity by the Federal Reserve, then down again when the Fed indicates it's pulling back. The CBOE Volatility Index (VIX), often referred to as the “fear index,” on March 16, and fell 50% on April 9. The S&P 500 climbed 14.5% in April, a month which also saw a historical collapse in oil prices. All this made for an enormous wave of online trading activity and new signups for brokers.
E*TRADE, Fidelity, Schwab, Robinhood, and Interactive Brokers all reported either increased activity, new account signups, or both, as individual investors adjusted their portfolios or bought equities and options at a feverish pace.
- Trading on Robinhood tripled in March of 2020 compared to March of 2019
- Fidelity clients logged in more frequently, up 56% from March 2019 to March 2020
- E*TRADE said its younger customers checked their accounts at a significantly higher pace than those over 50
Trading activity has broken records at many online brokers. Charles Schwab’s first-quarter financial reports showed that of the top 30 volume days in the company’s history, 27 of them were set in February and March 2020. Logins by Fidelity clients increased by 56% from March 2019 to March 2020.
A Robinhood spokesperson says that March trading volume was roughly triple the average volume in Q4 2019 and that 72% of equity trades were buy orders. Robinhood teased a major update to its user interface in a tweet on May 12, coyly saying, “We're getting a new look. Stay tuned for more.”
E*TRADE's surging trade figures continued into April, with a 3% increase from March. StreetWise, the E*TRADE quarterly tracking study of experienced investors from all online brokers, showed Gen Z and Millennials are focused on their investments amid the current crisis, ahead of their health. This survey was conducted in the first week of April 2020, sampling investors with more than $10,000 in a brokerage account. 54% of investors under 30 check their portfolio at least daily, compared to 29% of the total. Portfolio concerns were noted by 53% of investors under 30, while 44% worried about their health.
Interactive Brokers added 46,000 new accounts in April, and set a record in March for the number of cleared trades. If Interactive Brokers' customers maintained their March trading activity for an entire year, the average account would place 586 trades in 2020. Activity dropped a bit in April to an annual rate of merely 484, still well above the average of 289 measured in mid-2019.
TD Ameritrade clients were very active and proved to be net buyers overall for the second month in a row in April, according to JJ Kinahan, chief market strategist at TD Ameritrade. “In April, clients increasingly took the long view with heavy buys in the Consumer Discretionary and Industrial sectors,” Kinahan notes. In the first week of May, TD Ameritrade clients were net buyers of stocks including Tesla (TSLA), Boeing (BA), and Amazon (AMZN). In spite of being net buyers, the TD Ameritrade IMX, the firm's proprietary behavior-based measure of customer sentiment, declined in April for the third month in a row.
Frank Lietke, Sr. Director at Ally Invest noted that clients were net buyers in March, with a 71% buy ratio for the month. Lietke noted that the manufacturing sector traded down while the financial and transportation sectors traded up. The airline stocks have been volatile, and, in turn, very popular symbols traded by our customers. “We’re seeing heavy trading in Zoom [stock] as their user base soars with so many people working remotely and connecting virtually,” Lietke notes.
Fidelity Investments published an analysis of retirement account activity in the first quarter of 2020, showing that the 30 million 401(k), IRA and 403(b) retirement accounts dropped 14-19% in value in that time period, but for the most part, its clients stayed the course. The average 401(k) balance was $91,400, down 19% from the record high of $112,300 in Q4 2019.
New Tools and Features
With all the trading activity, we’re not seeing very many changes to online brokerage platforms. The main update most brokers reported were cuts in margin interest rates as well as cuts to interest paid on customers’ cash balances.
Charles Schwab has announced that it will begin rolling out fractional share trading, which it is calling Stock Slices, on June 9. The eligible stocks are those found in the S&P 500, which include Apple (AAPL), Netflix (NFLX), Amazon (AMZN), and Facebook (FB). The minimum “slice” will be $5 and customers will be able to buy up to 10 stocks in a single transaction.
E*TRADE launched enhancements to its stock screener with 16 thematic screens, including Playing Defense, Hedging with Gold, Undervalued Large Firms, Up and Comers, Emerging Economies, and Technology Pacesetters. Customers can also enable toast notifications in its Power E*TRADE platform that pop up when your order is filled, receives a partial execution, or other notification. Once notified, jump to positions or orders pages with a click.
Interactive Brokers was the busiest in terms of adding capabilities so far in 2020. The firm expanded its mutual fund marketplace significantly, and now offers over 25,000 funds from around the world (8,400 with no transaction fee). Research offerings were enhanced, with ESG scores on ETFs and mutual funds as well as information from BCMstrategy, Channelcheck, Gordon Haskett, and Naviga. IBKR’s managed portfolios subsidiary, Interactive Advisors, added six socially responsible investing portfolios.
Merrill Edge has launched a new feature, Dynamic Insights, designed to give clients deeper insights into their holdings, and how to adapt to current market conditions, updated in real-time. Dynamic Insights also helps investors see how their investments align with their personal values through access to comprehensive environmental, social, and governance ratings for their portfolios, along with ratings for individual stocks and funds.
SogoTrade tells us of a new service called Get Paid to Trade, which the firm expects to launch later this week. We will have more details on this service soon, but in short, SogoTrade will share the rebate it gets from exchanges and market makers with its clients
Motif Investing, one of our award winners in our 2019 Robo Advisor Awards, announced that it will cease business on May 20, 2020. Customers have been informed that their accounts will be transferred to Folio Investing if they have not taken action otherwise. On May 14, Goldman Sachs announced that it was acquiring Folio; the transaction is expected to close in Q3. The custodial division of Folio will be folded into the bank’s global markets division.
Motif’s technology was acquired by Charles Schwab, which will include all of Motif’s technology and intellectual property, including algorithms, patents, and source code. In addition, Motif’s founder and CEO, Hardeep Walia, will join Schwab along with the majority of Motif’s staff. Neesha Hathi, executive vice president and Chief Digital Officer at Schwab says the acquisition was driven by client interest in customizing their portfolios. “We intend to leverage Motif’s platform to build on Schwab’s existing capabilities and help accelerate our development of thematic and direct indexing solutions for Schwab’s retail investors and RIA clients,” Hathi says in a release.
The markets have bounced from optimism that the economy may be getting back on track, to pessimism after Fed Chair Jerome Powell says that the economic outlook was "highly uncertain" and that more support will be needed beyond the nearly US$3 trillion already approved by Congress.
Our own Investopedia Anxiety Index is hovering near its all-time high, set in April, as our readers seek actionable information across three categories of topics: macroeconomic (such as inflation and deflation), negative market sentiment (such as short selling and volatility), and debt/credit (such as default, solvency, and bankruptcy).
Our own readers have reported changes in their investing behavior with two-thirds saying they have altered their course. Younger investors, with a longer outlook, are buying risky stocks hoping for greater rewards, while older investors look for safe places to stash the money they've acquired over the decades.
The continuing crisis means volatility is likely to remain high as certain sectors (airlines, hotels) suffer and others (food, video games, streaming services, and communications) continue to perform. Anxiety and uncertainty translate into continuing high trading activity.