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Retail Brokers Are Booming During Quarantine

With millions of Americans working from home or quarantined due to the coronavirus pandemic, the retail stock trading industry has been booming. Major online brokers such as Charles Schwab, TD Ameritrade, E-Trade, and Robinhood have seen an explosion in trading activity, as eager investors flock to markets, hoping to make quick money while facing economic hardships and unemployment.

E-Trade’s trading activity and new accounts rocketed higher in the second quarter amid this influx of retail investing activity that was inaugurated during the coronavirus market disaster.

The retail outfit, who is scheduled to be acquired by Morgan Stanley in the second half of this year, reported Thursday a record 1.01 million daily active revenue trades in Q2, representing more than tow and a half times its daily trades last year. This is up from 657,000 daily trades in the first quarter.

Other major online brokers are witnessing a similar surge in new accounts and trading activity during the coronavirus recession as small investors rushed into the market after the precipitous February decline, noticing the subsequent rebound as an opportunity.

With a confluence of factors affecting the economy and markets, not since the 1990s have so many retail traders taken to day trading, with their influence contributing to market fluctuations lately.

As the coronavirus has driven many workers to shelter-in-place, a lack of activities such as sport-betting, and other traditional speculative activities may be driving investors to play the stock market instead.

While professional investors exited the stock market amid the coronavirus pandemic, sports bettors and bored millennials have climbed aboard the retail train, encouraged by zero dollar commissions, hopes for a v-shaped recovery, and a lack of other outlets like sports betting, which were shuttered due to the Covid-19 pandemic.

“For a gambler, investing has a ton of similarities,” said Barstool Sports founder Dave Portnoy, who has begun streaming his day-trading sessions for an audience that normally consumes sports betting content.

The esports world has also been a hotbed of activity during the pandemic. Roundhill BITKRAFT Esports & Digital Entertainment ETF (NERD) has been on a tear since March, having gained more than 52% since then.

After gaining a record of 329,000 new accounts in the first quarter, E-Trade grew by an additional 327,00 new retail accounts in the second quarter. This is in contrast to the 34,00 new accounts the broker gained in the second quarter a year ago.

The rapid growth for the broker brings its year-to-date retail asset flows to $31.9 billion and account growth to 656,000.

“We generated greater retail organic asset growth in the first half of this year alone than in the previous two years combined, and generated more retail organic account growth than the previous five years combined,” E-Trade CEO Mike Pizzi said in a company release.

Since last week, other major retail trading outfits Charles Schwab, TD Ameritrade, and Interactive Brokers reported similar surges in trading activity and new accounts in the second quarter.

E-Trade also beat on the top and bottom lines of its second quarter earnings. The broker earned 88 cents per share on revenue of $716 million. Wall Street projected earnings of 76 cents per share on revenue of $676 million, according to Refinitiv.

“We generated our highest period ever of revenue from trading-related activity, which more than offset the quarter-over-quarter pressure on net interest income, given the Fed’s recent rate cuts to near zero,” E-Trade CFO Chad Turner said in the release.

For investors looking to take advantage of the moves in the retail brokerages, the iShares US Broker-Dealers ETF (IAI) is one fund to consider. IAI contains Goldman Sachs, E-Trade, TD Ameritrade, and a number of other well-known brokerages, and is one of the only funds of its kind.

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