Which Online Brokers Have the Most Active Traders?

News flash: Brokers who position their services to attract active traders see greater trading activity than brokers who appeal to the masses. Shocking, right? With the increase in volatility we’ve seen in the markets over the past year, an uptick in activity would be expected. Average annual trading frequency picked up 13% (23.3 versus 20.6) in our sample, though that accounts for less than three trades annually, between 2017 and 2018.

We dug through trading statistics for six publicly traded online brokers, and extracted some figures for Fidelity, to create a picture of how often their customers trade. These statistics include all asset classes each broker provides, including stocks, options, fixed income and trades placed on international exchanges. 

The six publicly traded brokers’ figures, from Interactive Brokers, E*TRADE, TD Ameritrade, Charles Schwab, TradeStation and Ally Invest, are published on an account level basis. Fidelity, which is privately held, disclosed some figures to us grouped by household, which are not entirely equivalent since one household can have several accounts. They only gave us permission to publish the per-household statistics, but we made some adjustments based on Department of Labor reports, which show that households with brokerage accounts average 2.5 accounts per household. (My household has 15 online brokerage accounts for two people, but we might be outliers.)

Ranked by 2018 Trades per Account. Source: Investor Relations for publicly traded brokers, Fidelity Investments for their figures

Interactive Brokers’ customers traded, on average, nearly 360 times, up 5.3%, per year in 2018 while TradeStation’s customers traded close to 260 times annually, an increase of 11.5%. Since there were 249.5 trading days in 2018 (251 in 2017), it’s apparent that these brokers have clients that generate a lot of trades. It's not a surprise since their platforms are geared for the most active traders.

On the lower end of the scale, E*TRADE’s clients placed an average of about 15 trades per year. No wonder they offer incentives to trade more often, though this trading activity is not far removed from others who market their services to the mass affluent. That group includes Fidelity, TD Ameritrade, Ally Invest and Schwab. Our estimate of 2.5 accounts per household drops Fidelity a bit behind E*TRADE, but those calculations may not be equivalent since Fidelity did not supply us with figures that align with the way the other brokers are required to report.

Charles Schwab posted the largest gain in trading activity among these seven brokers measured in percentage, up 27.3%, tacking on 4 additional trades per account in 2018 when compared to 2017. TradeStation’s customers increased their activity by the highest number overall, transacting nearly 27 more times per year. Charles Schwab spent the last year making its platforms more stable, and integrating options analysis and risk management tools. TradeStation has restructured every part of its organization over the last three years, updating its education offerings and making its platform easier to use. Those efforts have apparently paid off.

We can’t guarantee that these are apples to apples comparisons, but we doubt any of them are off by much. Regulatory filings are fairly strict when it comes to reporting customer activity.

Interactive Brokers, which attracts very active customers, generated 41% of its net revenue from commissions in 2018. For TradeStation, which is a subsidiary of the Monex Group, based in Japan, revenues from commissions were more than two thirds of its net revenue. TD Ameritrade's commission revenue was about one-third of its net revenue. Clearly it's important to these brokers to attract customers who are peripatetic traders, and to provide them with services and features to keep them trading.

Charles Schwab, though, generates less than 10% of its revenue from commissions, while over half comes from interest income. E*TRADE also generates more than half of its net revenue from interest income; 17% comes from commissions and another 15% is due to "fees and service charges," according to their 2018 annual report. (We do not have comparable financial statistics from Fidelity or Ally Invest.) These brokers appear to be more invested (so to speak) in gathering assets than in trading.

Source: Fiscal Year 2018. Source: Investor Relations for each broker

As fees compress it will be harder for online brokers to generate more revenue from trading activity from their users. Upstarts like Robinhood, offering free trades but few other perks, will continue to put pressure on the legacy brokers. Robinhood's problem is that its users are just not very active, and trade small quantities. Serious day traders require tools and functionality that brokers like TradeStation and Interactive Brokers have built their businesses upon, and can continue to charge for - at least for now. Fidelity and Schwab, classic money management firms that also offer trading on their platforms, don't need as much activity as long as users are buying their products.

What does this mean for you as you select an online broker? It’s important to know what kind of trader you are – peripatetic or laid back – and select your brokerage accordingly. We've reviewed over 70 in our 2019 Best Online Brokers Awards to help you identify the right one, whether you are active or just browsing.