Online Trades Rise 30% in 4th Qtr Amid Internet Surge
Bloomberg News December 18, 1998, 2:44 p.m. PT
Online Trades Rise 30% in 4th Qtr Amid Internet Surge
New York, Dec. 18 (Bloomberg) -- Investors, spurred by hunger for Internet stocks, increased online trading at least 30 percent since September, analysts and industry executives said.
''The world finally got wired,'' said Kenneth Pasternak, president and chief executive of Knight/Trimark Group Inc., which says it executes 40 percent of all online trades and counts Web brokers such as E*Trade Group Inc. and Waterhouse Investor Services Inc. as clients. ''It's novices trading the Internet stocks and feeling the power of the Internet.''
Individuals are trading stocks over the Internet almost 350,000 times a day, up from 250,000 in the third quarter, according to estimates by industry analysts and some firms. That's about 25 percent of the 1.4 million trades the New York Stock Exchange and Nasdaq Stock Market say they execute each day.
Investors trade about 100 shares in each of these transactions, compared with the exchanges' average of more than 1,000 per trade, so online brokers account for only a small part of the $55 billion of stocks that trade daily on U.S. exchanges.
With eight trading days remaining in 1998, Charles Schwab Corp. and E*Trade, the two largest online brokerages, are showing increases of more than 30 percent from the third quarter, according to people familiar with the companies. A 30 percent increase would put the daily average for Schwab alone at close to 100,000 trades.
Other firms report even greater percentage increases. ''Our volume is up 50 percent in the last six weeks,'' said Pasternak. Datek Online Holdings Corp. President Alex Goor said last week the daily average is up 50 percent to 33,000 trades in the fourth quarter from 21,272 in the third quarter.
Cheap Trades
Demand for stocks like online auction house eBay Inc. and Internet booksellers Amazon.com Inc. and Books-A-Million Inc. drove online trading to new highs, with their daily price rises of more than $20 a share sparking small-investor interest.
''The increase in volume is all in Internet stocks,'' said E.E. Geduld, president of Herzog Heine Geduld Inc., the third- largest Nasdaq market maker, which executes trades for companies such as E*Trade.
Individuals are flocking to Web-based trading, analysts said, drawn by trades that cost an average $15.75 -- far cheaper than telephone trades with discount brokers -- and by Web sites that offer push-button execution, free stock quotes, news and broker research.
Online trading as an industry has ''moved well past the early adopters,'' said Lisa Nash, vice president of customer management at E*Trade. ''People have tried it and now they believe in it.''
Ad Spending
E*Trade, Ameritrade Holding Corp., the No. 6 online broker, and others are also spending more than $5 million a month on advertising to attract new users.
Industry growth of 30 percent is ''a very realistic prospect,'' said Bill Burnham, an electronic commerce analyst with Credit Suisse First Boston who publishes quarterly online trading industry volume figures. ''We've seen across-the-board increases.''
Schwab, Ameritrade and E*Trade declined comment on specific figures, saying quarterly statistics will be released in January.
Steve Franco, electronic commerce analyst with Piper Jaffray Cos., said the pace of online trading growth won't be sustainable if it's coming from existing accounts only. Online brokers must continue to add customers. Otherwise, ''I don't think they can carry these kinds of numbers going forward,'' he said.
''If you look at the last 90 days, most of the positive movers have been Internet stocks, and that's what these guys live and breathe on,'' said Franco, who also compiles quarterly industry statistics.
Pasternak at Knight/Trimark said more than 80 percent of trades in Internet stocks are made by individuals, who now drive those stocks' prices. ''They're ignoring any traditional valuation metrics and saying, 'I want to own it, even if it's only 100 shares,''' he said.
Biggest Market Maker
Pasternak has a broad perspective on the online trading industry. E*Trade, Ameritrade, Waterhouse and Morgan Stanley Dean Witter & Co.'s Discover Brokerage Direct own about 28 percent of Jersey City, New Jersey-based Knight/Trimark Group, which is the biggest Nasdaq market maker and ranks No. 10 on the NYSE.
Knight has executed about 229,000 Nasdaq and NYSE trades a day in December, and about 65 percent of them -- or about 150,000 -- are delivered to Knight by online brokerages or individuals. If Knight accounts for 40 percent of all online trades, that would put the recent daily industrywide average at almost 375,000.
Shares in E*Trade and Schwab have outpaced the market this quarter, with Schwab up almost 70 percent since Sept. 30. It closed today at 44 3/8, a record in its 11 years as a public company. E*Trade shares are up almost 50 percent to 27 15/16, while the Standard & Poor's 500 index is up almost 17 percent and Ameritrade is up about 12 percent.
Goor, president of Datek's online brokerage, doesn't see the recent explosive growth of online trading coming to an end soon.
''I don't think this is an aberration, I think it's a tremendous trend toward increased volume,'' he said. ''Online trading is an education. Doing it makes you do it more.'' |
