The day trader is back. And now, come along two new brokerages to mine the opportunity.
The fact is that hope springs eternal, at least in the discount broker world. Despite a brutal pricing war in recent years, a decline in online trading that crimped profits at the biggest retail sites, and the industry's feast and famine track record, two new discount brokerages aimed at so-called active investors are opening for business this week.
The sites, OptionsHouse.com and Just2Trade.com enter a crowded field, led by such names as E*Trade Financial (nasdaq: ETFC ), TD Ameritrade (nasdaq: AMTD ), Fidelity Brokerage, Bank of America (nyse: BAC ), OptionsXpress (nasdaq: OXPS ) and Scottrade. Both are offering flat-rate trading and claim to have newer, superior technology.
Good news for them that the markets have been on an upswing, drawing investors back to online trading. Just a couple of years ago, the biggest discount brokerages were struggling with declining revenues from lower trading volumes, prompting them to slash fees and do other promotions to generate trading volume.
Now, the Dow Jones industrial average is near an all-time high, with a record close of 12,480.69 on Jan. 3, reason enough to make investors optimistic about trading (maybe opportunistic is a better word). It seems to be a time for the return of the late-1990s day trading phenomenon.
Improved residential broadband Internet access and cheaper, more interactive software, is changing things this time, however. There's a new breed of day traders, or at least a new venue. Now, instead of setting up shop in day trading firms, traders can sit around their living rooms trading and still have access to the sophisticated analytical and market data information they once could only get at a firm.
"There is more opportunity to appeal to highly active traders who don't want to sit in day trading offices," said Chris Musto, general manager of financial services for Keynote Systems (nasdaq: KEYN), a mobile communications and Internet testing firm.
Mostly the new sites are offering the latest in trading technology and professional trading tools, such as market data and other information, in a slimmed-down brokerage offering that doesn't clog the screen with a lot of excess stuff. They are aiming at the niche of investors who already know what they want, or who have access to research and other information elsewhere and who aren't confused about how to set up and execute trades.
OptionsHouse.com debuted Monday offering flat fees of $9.95 a trade, regardless of the size of the transaction. Despite its name, the firm, a subsidiary of the market making firm Peak6, offers stock and options trading services. Options are becoming increasingly popular with retail investors who want to hedge their stock trades or dabble in a new market.
"We still see there being a tremendous opportunity," says John Hass, a former Goldman Sachs (nyse: GS - news - people ) partner who is co-CEO of OptionsHouse. "There really isn't anything for retail that is user-friendly and has a pricing structure that fits."
Just2Trade.com is an offshoot of Success Trade Securities and is offering unlimited $2.50 a trade to active traders and low margin interest rates (promising to match any firm that is lower) in its Tuesday debut. In the rush to appeal to a broader mass market brokerage consumer, "Everyone forgot about the active trader," says Fuad Ahmed, chief executive of Success Trade Securities.
Well, most everyone. In recent years, some of the big discount retail brokerages have developed programs for the highly active trading segment. And another firm, TradeKing, opened for business in December 2005. TradeKing, a reincarnation for former executives of SureTrade, offers a flat fee of $4.95.
Just2Trade would steeply undercut the larger firms. E*Trade has $6.99 pricing for active traders, for example. Ameritrade charges $9.99. OptionsXpress charges $12.95. But the big firms say traders care about other factors, especially the quality and speed of their trade execution.
And the whole pricing war seemed to ratchet up yet another notch in October, when Bank of America offered free stock trades to anyone who kept $25,000 on deposit with it. That program isn't necessarily targeted at active traders, however.
The discount brokerage industry has gone through periods of expansion before, only to beat a retreat when the markets cooled off. The first round was in the 1980s, when banks started setting up discount brokerages. Those went away, but paved the way for existing sites like Charles Schwab (nasdaq: SCHW - news - people ) to emerge as market leaders. The last two years have seen consolidation among the biggest firms.
"Maybe we're due for a third round," says Geoff Bobroff, a consultant in East Greenwich, R.I.
Or is this just another sign of a pending market cr@sh?
