Online Brokers Woo Active Traders With Service, Support and Tools

Online brokers are rolling out more-sophisticated tools, including trading communities, to capture the active trader.

In the ongoing frenzy for market share, the online brokers continue to throw more-sophisticated trading tools at their active trader customers, whose frequent trades make them valuable revenue producers for these firms. Internet brokers such as Charles Schwab, E*Trade Financial Group, Scottrade and TD Ameritrade have been ramping up their options trading analytics, market scanners, pre-trade analytics and charting capabilities to retain these savvy trading customers and woo them away from competitors.

Despite the fact that markets have been volatile over the past year, active traders continue to be engaged. "Even though the markets have been sketchy at best, you've seen the volumes on the online broker side pretty much hold up," says Christopher Larkin, VP of retail brokerage at E*Trade Securities.

"The customers are more sophisticated," he adds. "They have better risk management strategies, and customers are embracing options and stop orders." For example, Larkin says, instead of doubling down in a stock that continues to fall, active traders set stop orders that automatically sell off part of their positions.

"Volatility is an opportunity," adds Adam Honore, senior analyst at Aite Group. "If we've learned anything from history, smart people are trading now. The people who learned nothing are selling out; the people who understand the market are buying."

But under the current market conditions, even the best tools aren't enough for active traders -- given the recent volatility, customers are looking for a high level of service, including educational seminars, access to options trading experts and guidance on hedging risk, according to executives at the leading online discount brokers.

As a sign of what's coming, in late July, Charles Schwab, the nation's largest discount broker, unveiled Schwab Trading Community, an online community exclusively focused on its active trader clients. In this closed environment, active traders can blog, view live webinars, share ideas with fellow traders and gain access to experts on risk management and other hot topics.

Multi-Asset Toolbox

But rather than focus on new functionality, Honore asserts, the online brokers should focus on where the active traders are headed next: multi-asset trading. "You can throw as many bells and whistles as you want [at traders], but you ultimately have to head multi-asset," he says, predicting that active traders will eventually want to trade like hedge funds.

According to Salomon Sredni, CEO of TradeStation Group, the company's TradeStation Securities subsidiary -- a niche competitor in the online brokerage battle -- already is a multi-asset brokerage firm. "Close to 50 percent of our trades are non-equity," he says. "They could be options or forex contracts or futures contracts."

Even many of the brand-name online brokers have branched out into international equities and other asset classes, including options, bonds and cash. Charles Schwab, for example, has a global investing team that buys and sells equities on 35 to 40 foreign exchanges on behalf of all Schwab clients, including online traders. And TD Ameritrade -- which offers trading in foreign stocks through American Depository Receipts, or ADRs, which represent ownership of shares of a foreign company trading on U.S. markets -- also offers clients a tool, Bond Wizard, to help them research investments in fixed income and CDs.

To stay competitive, all of the online brokers are upgrading their options functionality, Aite's Honore adds. "I would say that everybody branched out into offering a unique flavor of options," he comments (see related sidebar, below).

But E*Trade is the only online broker that offers global trading directly into six foreign exchanges and their respective currencies. And E*Trade expanded its futures offering from six futures contracts to more than 200 when it launched the Trading Technologies platform in February 2007.

"If firms have a narrow offering, and they don't have fixed-income trading or international trading, then active traders will need to have multiple relationships with other firms," says Rich Levine, VP of Charles Schwab Active Trading Services.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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