Active Trader Programs: Is a Recovery in Sight?

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Celent Communications estimates that active traders account for almost 80% of the trades executed at online brokerage firms, and Celent expects that number to continue to rise.

In the last three years, trading revenues fell precipitously, and brokerage revenues followed suit. As buy-and-hold investors lost their appetite for buying and selling stocks, online brokerage firms became that much more dependent on the revenues generated by a small group of their customers, the active traders. In a new report, ?, Celent examines the state of the active trader services industry and the broad initiatives brokerage firms are taking in order to increase their market share.

The stock market crash had a profound effect on all investors, including those who trade most frequently. Diminishing prices brought diminishing returns to those who tried to profit from short-term gains in the market. However, while the number of active traders has declined in the last three years, the overall participation of active traders in the market has increased relative to non-active traders. "Active traders are indisputably valuable to brokerages, which is why those firms have continued to devote plenty of resources to this segment of their customer base," says Adam Josephson, research associate in the securities and investments group at Celent and lead author of the report.

The report profiles the active trader programs at five leading online brokerage firms: Ameritrade, BrownCo, Charles Schwab, E*TRADE, and Scottrade.

As trading technology improves across the board, online firms have become increasingly competitive on price, yet price is still the major differentiator among the players profiled in the report. Moreover, as investors become more comfortable handling their financial affairs online, the number who trade online is likely to increase. In fact, the rapidity with which retail investors have returned to the market in the last three months has surprised even the brokerage firms themselves, and has reinforced their belief that the active trader segment will be exceedingly profitable for years to come.

A is available online.

of Celent Communications' Retail Securities & Investments research service can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.