NEW YORK -(Dow Jones)- Somebody forgot to tell online brokerage customers to get depressed about the market.
Usually a declining stock market and dismal economy hurt online brokers because investors trade less. With the Dow Jones Industrial Average down19% in late afternoon trading since its peakon Oct. 9 - and with the economy stumbling dangerously close to recession - analysts expected traders to go catatonic.
But this time around, trading volumes at Charles Schwab Corp. (NASDAQ-NMS:SCHW) (SCHW), TD Ameritrade Holding Corp. (NASDAQ-NMS:AMTD) (AMTD) and E*Trade Financial Corp. (NASDAQ-NMS:ETFC) (ETFC) are holding up just fine. In fact, May trading volume at the brokers, according to the most recent data available, was higher than it was a year ago. Quarter-to-date trends also look healthy.
The reason for the activity seems to be, in part, that the online brokers' clients have have increasingly turned to options trading. Some small options- trading firms such as optionsXpress Holdings Inc. (NASDAQ-NMS:OXPS) (OXPS) are also benefiting from this trend. Moreover, investors have placed bets on market sectors like energy that have continued to do well, and the number of accounts at firms has been increasing.
"This confluence of things...makes it easier for the retail investor to trade with confidence," said Adam Honore, a brokerage and financial services analyst with research firm Aite Group.
And in some cases, that's leading to higher earnings for online brokers.
Last Tuesday, TD Ameritrade (NASDAQ-NMS:AMTD) said its daily average revenue trades, or DART, a figure closely followed by analysts, rose 3% over the prior month and 24% year- over-year.
With a healthy May trading report, the Omaha, Neb., company said it expects fiscal third-quarter earnings at the high end of its previous forecast of 27 cents to 33 cents a share.
TD Ameritrade's (NASDAQ-NMS:AMTD) shares are down about 5% over the past year and have traded roughly between $16 and $18 for the past six months. While Ameritrade (NASDAQ-NMS:AMTD) has focused more on gathering customer assets since it acquired TD Waterhouse in 2006, trading still accounted for roughly 40% of its revenue in fiscal 2007.
Rival E*Trade, the most troubled of the online brokers because of its exposure to the subprime mortgage market through a bank subsidiary, posted a 4% increase in May DARTs over the prior month, and a 10% increase compared with the year- earlier period.
E*Trade has lost over three quarters of its market value over the past year.
