Consumer Securities Trading
The following is an in depth look at the effects the Internet has had on trading securities in the United States. Its purpose is to define the impact of the Internet by determining specific changes in the structure of the trading market as a result of the numerous online brokerages that have surfaced in the past few years. A brief look at traditional brokerages and market characteristics prior to the advent of the Internet provides a foundation with which to measure many of its impacts. The arrival of the online brokerage model has not only introduced an entirely new vehicle with which to trade securities, but it also beginning to effect the way traditional brokerages view their own business models. Specifically, it appears that both the online/discount model and full service model of brokerages will both succeed in the next few years, with the top firms exhibiting characteristics somewhere between the two extremes. New Ameritrade television commercials debuted early this year with a twenty-something-year-old punk extolling the virtues of his new brokerage account to various business men and women. Perhaps the witty E*trade commercial featuring monkeys that first aired during the 2000 Super Bowl was more notable. These co
The impact of online brokerages is manifested in nearly every aspect of the securities trading market today. Trading volume increase is one of the largest impacts, as a result of the ease and availability of trading that online accounts bring to consumers. It is worth examining the numbers to determine if the large increases in trading volume are actually a result of online accounts, or merely pure correlation with a booming bull market. Over the past decade, the volume of shares traded on the NASDAQ stock market has grown at a compound annual rate of 26%, but since the arrival of online brokerages in 1995, it has grown at a rate of 30%. Although this is not an enormous increase, it is certainly quite significant. To look at it in another light, online accounts represented 15% of all brokerage accounts in the US, but more than 37% of the trading volume. Based upon past experience in the stock market, it may seem that this increase in trading volume is an entirely productive result. However, much of the trading volume from online accounts is a result of day trading, which raises concerns with the SEC. The majority of discount firms rely on trading volume to create revenue through their online offerings. This means they depend on accumulating customers who trade frequently in order to collect fees for trades made. Trade volume has been increasing quite dramatically over the past few, as the percentage of online trades increases as a proportion of total. This bodes well for the online brokerages who are accumulating customers, although those players who are at the bottom of the pack will likely fall out soon. The market is remarkably consolidated after just 4 years in existence. In fact, the top ten online brokerages comprise 90% of the online assets and accounts, and the top 4 comprise 86%. Those brokerages who are having a tough time accumulating customers and trade volume even while the online brokerage market is hot, will likely fall out soon. Referring back to Figure 1, it can be seen that the number of online brokerage firms is expected to decrease over the next few years while the number of online accounts increases. The online industry is consolidating quickly while continuing to grow. Although there is still a large disparity between discount firms and full service firms in terms of how they operate and what they offer, this is likely to change in the coming years. Already, the trend for full service firms to go online is in motion, and there are even some discount firms that are beginning to complement their trading services with plans for banking, insurance, and bill payment services. Currently, discount firms have approximately 74% of their transactions online versus 18% online at full service firms. In a Deloitte & Touche survey, 100% of full service firms said they planned to use online trading to enter new businesses, create alliances, or shift the business model, and 74% of discount firms said they planned to add additional services that are typically offered only by full service firms. It appears that the two extremes in brokerage services are headed towards a common middle ground. As the author of the Deloitte & Touche study put it, "the distinction between discount brokers and full service firms is becoming less evident." There is distinct evidence that the brokerages that will prevail in the next decade will have features of both a discount brokerage and a full service brokerage. A 50/50 hybrid model of online and full service could prevail, but it is more likely that the future constituents will be based on one core competency (online vs. full service) and have significant characteristics of its counterpart. This is because each business model appeals to different segments of the population. It is generally agreed that full service firms have a distinct advantage in advertising dollars and brand equity, and appeal to investors with more money and/or less knowledge of investing.
Some common words found in the essay are:
Stock Exchange, Deloitte Touche, Charles Schwab, Touche Survey, Wall Street, , Witter Fidelity, Referring Figure, Aufhasuer Company, McKinsey Company, online brokerages, service firms, discount firms, trading volume, online brokerage, securities trading, online accounts, deloitte touche, traditional brokerages, financial advice, research financial advice, firms service firms, online brokerage market, discount firms service, service firms online,
Approximate Word count = 2743
Approximate Pages = 11 (250 words per page double spaced)
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