Tag: Interactive Brokers

Interactive Brokers

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Discount Brokerage Weekly Roundup – November 2, 2020

Just because Halloween was seriously curtailed this year doesn’t mean there can’t still be a few treats dished out in a socially distant way. Besides, at this point, we’re all probably in need of some kind of boost to see us through what is going to be a wild week.

In this extended version of the Roundup, we kick things off with the launch of a new month and that means an update to see what’s been happening with online brokerage deals. From there, we continue coverage of the growing trend of DIY investor content that showed up in October, and how for one online brokerage, it was the lead-up to something big. And, for a bonus treat, we have included a handful of stories that we were watching but which didn’t make it into the full Roundup format – enjoy these bite-sized updates. As always, we close things out with updates from the investor forums and DIY investors on Twitter.

Cold November Rain, Warming Discount Brokerage Deals?

For Canadian deal-hunting DIY investors, the start of November is when the stars align. Not only is it the month in which Black Friday deals surface, but it also is the start of a new fiscal year for many online brokerages in Canada, and – the best part – it is the ramp-up to the busiest stretch for online brokerage deals.

Even though RSP season is still several months away, November is typically the month in which online brokerages start launching some of their best offers of the year.

Out of the gate, the activity in this month’s discount brokerage deals and promotions section is quiet. No new offers launched as of the first day of the month (or at least no offers were advertised), but the fact that the new month started on a Sunday might have had something to do with that.

Thus, the picture for the start of the month is that the official deal count dropped by one, as the HSBC InvestDirect commission-free trade offer officially expired at the end of October (30th).

The news for DIY investors looking for a deal wasn’t all gloomy this past month.

Questrade announced that they have removed their inactivity fees. In doing so, they are now one of two online brokerages that have no inactivity fees regardless of account size. That simplifies not only pricing but also the terms and conditions investors have to keep track of.

In the past, November has been a very big month for online brokerage promotions to come to market. We suspect that despite 2020 being a historic year for account openings and new investors flooding to online brokerages, the strategy going into 2021 and RSP season, in particular, will be to bring some splashier promotions online, since the deals activity for most brokers was relatively quiet in the spring and summer.  

This month, probably more than any other November, is going to be full of (hopefully pleasant) surprises. Stay tuned!

Online Learning in the Spotlight for DIY Investors

Anyone new to the markets in the past several months is getting an interesting lesson in the strange relationship between economic fundamentals and the stock market. Despite a wide range of negative news, there are certain stocks that have continued to rally, fueled in large part by the beliefs of investors who are putting their capital and hopes on some generational changes.

With so many new investors now participating in the market, it seems that investor education was especially relevant this year. For its part, TD Direct Investing has leaned heavily into their investor education programming, with a series of events including two webinars with notable personal finance voices.

Earlier this month, we reviewed a webinar held by TD Direct Investing with YouTube investing personality Brandon Beavis. This session, entitled “Become a More Resilient Investor,” covered the basic principles of investing and provided Beavis’s perspectives on taking a balanced approach to getting started in the markets.

Another interesting webinar held by TD Direct Investing for Investor Education Month featured personal finance author Sandy Yong. Her presentation, entitled “How to Start Investing on a Budget,” was aimed at beginner investors (very beginner investors) and mapped out several steps that individuals who think they do not have money available to invest could follow to help them on their journey. As with the Beavis presentation, the perspective on investing provided by Yong was to take a balanced and diversified approach.

While the presentation itself was informative to anyone looking for a very basic primer on how to go about getting started in planning for an investing journey, some of the Q&A topics dug into specifics like dollar-cost averaging and the differences between TFSAs and RRSPs.

These sessions seemed to set the stage for an important full release of the new TD GoalAssist feature that officially debuted last week. After being in development since 2019, the new app-based offering from TD Direct Investing tackles a number of items that investors (especially TD Direct Investing clients and DIY investors) have been clamouring for, such as commission-free ETF trading (on the app only) of TD ETFs. Other big benefits: There are no account minimums required, and TFSA, RRSP, and cash accounts are supported.

We’ll have more to say about this new service in the weeks to come. However, the investor education efforts at TD Direct Investing recently and the launch of the new GoalAssist seem strategically aligned at this point.

Now, to shift gears from focusing on the lead-up to a product launch to shining a spotlight on one very shiny new industry, this month also featured another big bank-owned online brokerage, BMO InvestorLine, sponsoring a fascinating webinar on an increasingly popular industry segment: eSports.

Presented by Evolve ETFs – a Canadian ETF provider that gives investment exposure to the eSports sector – this webinar helped to explain the opportunities available in the eSports and eGaming sectors and outlined how investors can look at participating in them. Because they offer an ETF aimed at the eSports sector (ticker HERO on the TSX), there is clearly an interest in bringing general awareness and understanding to the sector. However, there is also clearly an audience of investors – especially younger investors – who have witnessed firsthand the popularity of this growing industry.

Providing access to interesting investment themes via ETF providers is one way that online brokerages, like BMO InvestorLine, can easily relay information about market opportunities without having to create content themselves. With DIY investors looking to understand many of the new and emerging sectors, this kind of niche ETF provider presentation is something we anticipate seeing more of at other online brokers.

A Quick Tour Through Other Stories

Despite the already-long format of the Weekly Roundups, there are often several stories that don’t make it to being covered but that could be of interest to DIY investors and are definitely relevant to the world of DIY investing. Starting this month, we’ll be sharing these stories at the end of each month as a way to bring these topics to light, even if we don’t do our usual deep-dive format with them.

Raising Margin Requirements

Two points do not necessarily make a trend, but when it comes to a batting average for online brokerages, Interactive Brokers is batting 1,000 for volatility planning. And this time around, they aren’t the only ones.

Although it might have been a self-fulfilling prophecy heading into election day in the US, the reality that has played out over the past week has shown that raising margin rates ahead of the storm of uncertainty proved to be a smart move. Read more here.

Interactive Brokers Earnings Report

All things considered, it was a pretty good year for Interactive Brokers. What counts as good? A 47% year-over-year increase in the number of accounts and growth in “all client segments and all geographic regions” ought to do it. Also discussed was the launch of another new feature: the ESG-driven Impact Dashboard. Dive into the full transcript and more details here.

Class-Action Lawsuit

DIY investors who purchased or hold mutual funds through their discount brokerage are the focus of several class-action lawsuits, specifically on the issue of trailing commissions.

Read more about which online brokerages (several of the big bank-owned online brokerages are named in these actions) are impacted, and find out how to stay on top of developments in these cases, here.

Discount Brokerage Tweets of the Week

From the Forums

A Day Late & A Dollar Short

In this post, a Redditor gets frustrated by delays for fund transfers and asks which online brokerages “have same-day deposits?”

The Smart Money

A twentysomething in a new job asks in this post if it’s smarter to put their signing bonus money into a TFSA or RRSP. Fellow Redditors weigh in.

Into the Close

That’s a wrap on the pre-election, once-in-a-blue-moon, I-can’t-even edition of the Roundup. There’s really only one big story that matters this week, so here’s hoping everyone finds a little reprieve by the end of it.

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Discount Brokerage Weekly Roundup – October 19, 2020

Despite the stock market being a voting machine on what the future is expected to look like, the videos of people making lightsabers and satellite internet deploying also provide reassurance that despite the pandemic, people are still hard at “work” making interesting things happen in the world (and outside of it). Online brokerages are also still keeping busy building and planning for the future, too. As big deals move through their paces, the world of DIY investing that they’re preparing for seems far away now but should be coming into reality by the 2024 US presidential election.

Big Deals Keep on Turning: Schwab Locks in TD Ameritrade Acquisition

While eyes are on America for the next few weeks because of the election, that doesn’t mean that there aren’t some interesting developments taking shape in the DIY investing space.

While the US Congress is awaiting a big deal on stimulus (at the time of publication), in the background there are two big deals that are now done and dusted in the US online brokerage space that will have some interesting consequences for online investors on both sides of the border.

Starting first with the acquisition of TD Ameritrade by rival Charles Schwab.

Eleven months and $22 billion (US) later, the “kind of a big deal” deal is officially done. The result is a gargantuan online broker in the US with about $6 trillion in client assets, 28 million online brokerage accounts, and more than 5 million daily trades. Fun fact: When Schwab first started, they were processing 50 trades per day.

This massive deal raises the stakes for “Schwabitrade” to get right the things that have made TD Ameritrade and Schwab clients as loyal and as vocal as they have been prior to this merger. The integration of the two brands will take an estimated 18 to 36 months, and for the time being, the two firms are going to be operating as separate companies.

Already, though, there are important changes to the executive team at Ameritrade that signal it won’t be “business as usual” for the next few years. Earlier this month several important TD Ameritrade executives were let go, indicating that there might be important changes coming to the client experience. One of the notable departures was that of the executive vice president of trading and education.

Mergers/acquisitions are an interesting proposition, since it essentially means taking what is hopefully the best parts of two platforms/experiences and creating an even better one in the end. At this stage, however, with such a long road ahead, there are many skeptical voices internally and among online investors who question the performance of some of the Ameritrade flagship tools (like Thinkorswim) post-merger.

For competitors in the space, the uncertainty offers an opportunity to win over unhappy clients. There is no shortage of competition among brokerages in the US, and as a result, Schwab must do a very good job of transitioning Ameritrade clients into a new experience and continue to innovate in a way that appeals to customers. E*Trade, Robinhood, Interactive Brokers, Fidelity, and others are all capable of benefitting from any missteps during the Ameritrade/Schwab deal, and it’s a fair bet that they will be actively advertising while Schwab is busy sorting out its next steps.

Of course, Schwab/Ameritrade isn’t the only big merger taking place in the online brokerage space. E*Trade is being acquired by Morgan Stanley, and for Canadian online investors, this could represent an interesting opportunity for another online brokerage competitor in the Canadian space.

Earlier this year (after the acquisition of E*Trade), Morgan Stanley announced the launch of a wealth management arm in Canada that specifically cited providing “a discounted self-directed investing solution” as part of their service offering. While it is unclear exactly what that might mean in terms of the platform/service that will provide the self-directed experience, the reality is that 2021 looks to be a year in which more than one US online brokerage may set up shop in Canada.

The other big Canadian consequence of the TD Ameritrade/Schwab merger is that TD Bank, parent to TD Direct Investing, is set to gain a 13.5% stake in Schwab because of the 43% stake that TD owned in Ameritrade. The approximate value of TD’s position in Schwab is worth just over $12 billion. Not a bad payday to avoid having to battle out what is increasingly a tougher fight in the online brokerage space in the US. Case in point: Robinhood’s valuation just reached almost $12 billion (US), with no signs of slowing down.

Investor Education Month – Update

This past week featured a solid lineup of educational content for Investor Education Month, to help individuals learn more about the nitty-gritty of managing wealth and investing. Of course, it being COVID times, all of this content was delivered via webinar, and as a result, attending these sessions was something you could do conveniently from the comfort of home.

Up first was a session prepared and delivered for Investor Education Month by TD Direct Investing. Specifically, TD Direct Investing arranged a webinar featuring YouTube finance and investing personality Brandon Beavis. Owner of the Brandon Beavis Investing channel and Investing for Beginners online investor education course, Beavis discussed the topic of how to become a more resilient investor.

There were a number of topics covered as part of this webinar, ranging from understanding the basics of the stock market, to opportunities to invest in during the pandemic, to some tips on how to go about buying and selling stocks.

In terms of staying “resilient,” the major tip Beavis offered to viewers was to come back to the basic principle of proper asset allocation.

This webinar was interesting in that both the guest speaker and the topics were geared specifically to younger and less-experienced investors.

For a new generation of investors, there are now lots of different places on the internet to turn to for information about online investing. However, YouTube is clearly a favourite when it comes to trying to learn just about anything. For younger/millennial investors, YouTube has a wealth of information on everything from cannabis to crypto to couch potato investing. Where Beavis stands out is not so much in the “get rich quick” content but more in the long-term balanced-investment approach.

The audience-size and viewership metrics speak for themselves for YouTube content creators like Beavis. There is clearly a value-add to having a younger, relatable voice explaining how things work in the stock market. Interestingly, this webinar seemed to emphasize a more “passive” investing approach that is more aligned with the “digital advice” of less-frequent investing, as compared to the online brokerages, which are incentivized toward a more active investor audience.

Overall, this was a great event to hear a broad conversation about the world of investing and personal finance. Specifically, it was effective for beginners who are curious about investing and want to get familiar with some of the terms and concepts of managing wealth.

In addition to the free webinar hosted by TD Direct Investing, there was also this past week an in-depth three-day personal finance series called the Canadian Financial Summit. Access to the event was free, but viewing the content more than 48 hours after the session required purchasing an all-access pass.

This series of webinars featured some of the most well-known names in Canadian personal finance, such as Rob Carrick, Ellen Roseman, and Peter Hodson, as well as many independent content creators and personal finance bloggers.

Among the topics most relevant to DIY investors that were featured in this summit:

  • TFSA Creator Shares Best Practices for Optimizing Your Financial Literacy
  • How to Pick the Right Stocks in 2020-2021
  • What DIY Passive Investing Style Is Optimum for You?
  • Why I Became a DIY Investor and How You Can Too
  • How to Crisis-Proof Your Finances
  • How to Easily Outperform Investment Advisors and Robo-Advisors
  • How To Automate Your DIY Investing Without Paying the Massive Fees
  • The High Risk of Bonds: Are Bonds Actually Safe Investments?
  • The Top Mistakes Canadians Make in Their Investment Portfolios
  • How to Build a Portfolio That Is COVID-Proof

There were lots of fascinating conversations about the fundamentals of investing as well as references to how to navigate some of the challenging financial realities presented by the current COVID-19 crisis. Interestingly, although not formally positioned as part of Investor Education Month, there was an abundance of material that was of value for DIY investors to have tuned in to. While the content is available for viewing after the conference, it does come at the steep price tag of $197.

From the Forums

No More Pencils, No More Books

A recent grad with no debt wants to set up an investment portfolio but feels lost and overwhelmed trying to study all the available information. Fellow Redditors weigh in with their advice in this post.

Lost That Loving Fee-ling

Can having more than one online brokerage lead to better outcomes? One DIY investor is starting to think about splitting assets among different brokerages rather than housing them all in one place and asks members of the Financial Wisdom Forum in this post for some perspective on whether having more providers leads to better returns.

Discount Brokerage Tweets of the Week

Into the Close

If the markets continue to move the way Donald Trump does, well, we’re not quite sure what direction they’ll be going next. This week will have a number of big earnings announcements, so all kidding aside, it’s likely to feature its fair share of volatility. Whatever screens you happen to be glued to this week, here’s hoping you find some time for something to smile at.

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Discount Brokerage Weekly Roundup – October 5, 2020

So, if things seem like they might have gone from bad to worse this past week, with non-stop coverage of the US election chaos, the good news is that the stock market happened to shrug it off. While there’s a lot for everyday people to digest in terms of news flow, thankfully the online brokerage space offers up some good news to tune in to, especially for DIY investors.

In this edition of the Roundup, we check in on the latest deals and promotions activity to kick off October and highlight some early signs that suggest DIY investors are going to see even more offers from Canadian discount brokerages before the end of 2020. Next, we take a closer look at some trading metrics that reveal just how popular September 2020 was for trading, and we fish out some bonus news from Twitter chatter that is going to be very important to the online brokerage space in Canada in 2021. As always, we’ve got chatter from DIY investors on Twitter and the investor forums to close out on.  

Tricks or Treats? October Discount Brokerage Deals Activity Seems Tempting

If there’s anything that 2020 has taught us to be aware of, it’s pending change. The start of a new month is when we take the opportunity to check on the current slate of deals and promotions offered by Canadian discount brokerages to see what’s changed and, more importantly, what DIY investors can look forward to in the weeks ahead.

Despite the many dour social, economic, and political headlines, the stock market has managed to stay remarkably buoyant. 2020 has been an unusual year for investor behaviour online, and likewise for the deals and promotions market. Since March of 2020, there has been a significant contraction in the number of offers and the number of online brokerages coming to market with compelling incentives to win over DIY investors.

At the beginning of this month, however, it looks like deals activity is coming back to life. Although there were no new deals to start the month, the small but encouraging development is that one of the current offers, which was set to expire at the end of this month, has been extended through to the end of November.

National Bank Direct Brokerage, which is currently one of three online brokerages offering a commission-free trade offer, has extended their 100 commission-free trades offer until the end of November. Regular watchers of the online brokerage promotion space recall that a few months ago, the only online brokerage in Canada with an advertised commission-free trade offer was Questrade. Late in the summer, however, HSBC InvestDirect jumped into the deal pool, followed shortly thereafter by National Bank Direct Brokerage.

The early pattern emerging from the restart to activity in the deals and promotions space is that smaller or less popular online brokerages are leading the charge to bring new offers to market. No big-five-bank-owned online brokerage has launched an offer (at the time of publication), but there is a strong likelihood that, over the next 60 to 90 days, things could ramp up dramatically for investor promotions. There is simply too much at stake heading into the rush for RRSP season, and online brokerages don’t want to risk being left behind.

As such, it makes sense that the smaller players will be racing to get their offers out and advertised as soon as possible. When one of the larger brokerages in the space launches an offer, the typical response is that it generates a lot of interest and conversation.

There’s little doubt that the next few months will see a contentious battle for attention among Canadian online brokerages, so every extra bit of exposure helps – especially when it comes to deals and promotions.

Another interesting trend so far in the restart to deals activity is the lack of cash-back offers. There are commission-free trade offers that have come to market – some with expiry dates of up to a year – however, the most popular kind of offer, the cash-back, hasn’t made an appearance. There’s certainly a strong likelihood that this is something that could change heading into the thick of the RRSP season race, but for now, investors interested in cash-back offerings for opening an online trading account will have to rely on referral offers.

Although deals activity is muted by historical standards, data from online brokerages in the US shows the pace of account opening has plateaued, signalling the need to restart promotional offers to keep momentum strong. Also, according to discussions with several online brokerages, there are already plans underway to launch offers in the very near future.

It’s difficult to guess just how extreme the volatility predicted in the stock markets will be over the next several weeks, but it is likely that amateur and professional active traders alike will be looking to take advantage of the uncertainty. With their increased presence and activity fueling the conversation online about trading opportunities and online brokerage experience, and by virtue of the fact that this group of online investors is incredibly highly prized, it seems reasonable to expect that online brokerages will not be waiting on the sidelines for too long before coming into the market with some attractive offerings.

Investors and non-investors alike will be collectively on edge this month. Here’s hoping that in the run-up to the US presidential election, Canadian discount brokerages offer up some positive changes in the form of compelling offers for investors to smile about.   

In Data We Trust: Interactive Brokers’ September Metrics Reveal Heavy Trading

Despite the world having a sense of chaos at the moment, the steady marker of a new month in the form of trading metrics from Interactive Brokers helps to add a little bit of order back into things. This past week, the popular-with-active-investors online broker released their regular trading metrics for the month of September.

One of the great features of Interactive Brokers when it comes to reporting performance is their transparency and disclosure of trading activity stats.

Among the highlights from their most recent month’s trading metrics was that client account growth remains very strong. Interactive Brokers grew the number of accounts they have to 981,000, which is 4% higher than the previous month and 47% higher than the same point last year. By implication, it means that October 2020 is likely the month that Interactive Brokers hits 1 million total accounts. Although the number of accounts pales by comparison to competitor firms (including Robinhood), the number of trades and the revenue per trade at Interactive Brokers is nothing to sneeze at.

Another interesting data point that jumped out from the Interactive Brokers press release on trading metrics was the volume of trading on their IBKR PRO platform. Recall that Interactive Brokers launched a zero-commission platform in late 2019 (IBKR Lite), which ultimately catalyzed other big online brokerages into following suit and triggered an avalanche of consolidation (e.g., Schwab acquired Ameritrade; Morgan Stanley bought E*Trade). The paid-commission version, IBKR PRO, reports its metrics.

In September, Interactive Brokers reported that there were 14.21 million trades placed on the IBKR PRO platform, with 8.12 million being buys and 6.09 million being sell orders. For context, the total number of trades in September was only slightly lower than in March (14.52 million) and June (15.07 million), a signal that September was a very busy month for traders working via the pro platform. Interestingly, even though the total volume was very high compared to the past several months (volume was higher 11.7% m/m), the size of orders in terms of number of shares purchased (2.6B shares) or sold (2.5B shares) was actually at the lowest point since February, a signal that traders are making smaller-sized trades.

The takeaway from these figures is that trading volumes in the US were very strong in September, a pattern that likely was true here in Canada, too. Interestingly, Interactive Brokers doesn’t show many signs of slowing down in terms of account growth. With the prospect of even greater volatility and uncertainty in the lead-up to the election, it appears that will be a catalyst for more account growth at Interactive Brokers but more cautious trading for its clients.  

Interesting Chatter on Twitter

It’s an understatement to say that there’s a lot happening on Twitter these days, much of it dramatic and filled with vitriol. As with anything on social media, however, filtering through the noise can provide some interesting results.

First, this past week Questrade celebrated their 21st anniversary as an online brokerage in Canada. They have had a storied journey but today enjoy the position as one of the most popular online brokers in Canada, through a combination of ultra-competitive pricing, savvy operations, and clever marketing.

Another very big piece of news is that online brokerage Tastyworks telegraphed more information about their plans to launch in Canada and, most importantly, provided some sense of timing and which account types they will be making available (or hope to) at launch. In a tweet from Tastytrade Co-CEO and President Kristi Ross, the plan to come to Canada was confirmed, with the anticipated arrival date pegged at Q1 (which we assume to mean early 2021).

This throws yet another log on the fire for zero-commission trading to become a greater reality as Tastyworks – the online brokerage – offers zero-commission trading in the US for stock trades and ultra-low pricing for options. Whether the pricing will remain similar to the US operations is unclear. However, what is clear is that in addition to Tastyworks potentially coming to market here in Canada, there are some important changes slated for CI Direct Investing and CG Direct (and potentially E*Trade) that will increase the level of competition among brokerages.

With a dynamic US online brokerage setting its sights on Canada, the incumbent online brokerages are going to have to get ready to move faster and with more exciting features in 2021.

Discount Brokerage Tweets of the Week

From the Forums

Take the Bull by the Horns?

DIY investors weigh in on whether or not to hold onto a stock that’s currently on hard times. Some forum users laud this as a once-in-a-lifetime opportunity, while others are less certain in this post.

(Re)New and Old

A Redditor turns to the forums in this post for advice on which renewable-energy ETFs others are investing in.

Into the Close

On the plus side, October is Investor Education Month, and there’s a pretty good chance that investors of all stripes will be subject to some kind of lesson-learning. For all of the perils that misinformation has laid bare, it’s probably wise to check out some of the many investor-education activities planned, starting with this list from the Ontario Securities Commission. Alternatively, there’s always one more thing on the list of things that you never saw coming in 2020: the latest TikTok craze, for 1977’s “Dreams” by Fleetwood Mac.

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Discount Brokerage Weekly Roundup – September 28, 2020

It’s kind of hard to ignore the elephant in the room. In this case, the US presidential election is going to be the focal point for the next six weeks (maybe even more), and it seems like markets are bracing themselves for what is going to be a wild ride. Interestingly, this time around, it seems some online brokerages are doing more than just buckling up in preparation.

In this edition of the Roundup, we look at how one agile online brokerage is positioning itself once more for the volatility it sees heading into the US presidential election. On the topic of change, one popular Canadian online brokerage is providing an early look at its new online trading experience, starting first with a soft launch in beta. As always, we’ve got the latest commentary from DIY investors on Twitter and in the online forums.

Interactive Brokers Braces for Risky Times Ahead

When it comes to volatility in stock markets, online brokerages certainly have cause for optimism. Generally speaking, more uncertainty for stock prices is a good thing. It tends to mean more trading activity, and that means greater revenues. Of course, sometimes there can be too much of a good thing. For online brokerages, when it comes to volatility, there are also considerations that need to be made for the amount of risk that gets extended to investors for trading on margin. When prices for stocks move around too dramatically, there’s a good chance that traders can get caught offside, meaning they end up owing more than their account has available to finance a trade.

This past week, online broker Interactive Brokers once again tightened the risk belt by increasing the initial margin lending requirements from 50% to 67.5% for a new position and from 25% to 33.75% for maintenance. The underlying cause of volatility cited by Interactive Brokers is the run-up to the US presidential election. Despite the change in risk requirements being communicated directly to clients (rather than in a press release), the move has caught the attention of financial writers and media outlets.

At face value, prudence seems like a sound move. However, in the world of online trading, raising margin lending requirements is akin to raising the cost of doing business, which is a tricky proposition in a very competitive landscape. That said, the risk has to be worth the reward, and, in this case, there is some additional context that makes this move even more interesting.

Several years ago, Interactive Brokers made a similar forecast for volatility approaching in markets and were not only right, but their peer firms were considerably underprepared when volatility struck. The result: several large online brokerage firms in the US suffered some embarrassingly high trading-related losses as a result of client margin accounts going offside. Earlier this year, however, it was Interactive Brokers that was left stung by margin losses incurred by traders when oil prices went negative. So, though it might be cautious for Interactive Brokers to take some potential revenue off the table by raising margin requirements, the resulting savings from possible losses seems like the right tactical move.

As of the publication of this Roundup, it was not clear that any other online brokerage had made a similar move. Nonetheless, having served as a canary in the volatility coal mine before, Interactive Brokers is once again sending a signal that trading risks are likely going to intensify in the coming weeks.

For Canadian DIY investors, the important takeaway is to prepare appropriately for possible market volatility.

This year (and in previous years), volatility has tended to introduce unpredictability into trading systems. It is not unheard of for trading systems to fail during trading hours and/or even be unpredictable for days afterward. In fact, even when markets have not been facing exceptional trading volumes, there have been trading platform outages and connectivity issues, which makes the prospect of heightened volatility that much more worrisome.

Comments from social media this past week, for example, reveal that two of Canada’s largest bank-owned online brokerages suffered trading-platform connectivity issues, and Twitter comments from Canadian DIY investors show that several online brokerages continue to wrestle with getting their trading platforms up to the point where they can keep pace with the elevated interest from online investors. For active investors on these platforms who are using margin to trade, the move by Interactive Brokers should be a signal that more caution should be heeded throughout October.

No doubt active investors and traders will want to sail into the storm, but good traders know that it’s also important to be able to make it to the other side of the that storm intact. Here’s hoping both online brokerages and investors prepare accordingly.

CIBC Investor’s Edge Teases Changes

This past week, some chatter on investor forums put the latest move by one of Canada’s largest bank-owned online brokerages into the spotlight.

CIBC Investor’s Edge launched a new beta version of their online trading platform earlier this month, and even though there are still more changes to come, the first look at the user-experience enhancements points to a simplified and more modern look and feel to the platform.

For the moment, the updated sections include “My Accounts” and “Account Holdings,” with updates to accessibility features also reported to be available in the new version of the site.

While consumer response via the forums to the new site format was lukewarm, the interesting feature of some of the comments was the interaction with the feedback form, which is part of the new beta site experience. Rather than roll out the new site in its entirety, this partial rollout presumably enables design teams to hear from customers as to the things they do or don’t like about the new site direction. In particular, navigation has substantially changed, which can certainly confuse many users at the beginning of a new layout.

Although the full extent of the new site has not been revealed, it is interesting to see CIBC Investor’s Edge taking the approach to roll out portions of the new look and feel to their clients.

One of the areas of particular interest will be the new trading interface. Will active or somewhat active traders feel confident using it for order entry and execution? Standard commission pricing for CIBC Investor’s Edge is among the least expensive of the largest bank-owned online brokerages, which is why many online investors turn to this online brokerage. That said, platform experience has also been one of the major hurdles to adoption. If CIBC Investor’s Edge can get the new design and rollout to go smoothly, there’s a good chance that more DIY investor interest will turn their way.

Discount Brokerage Tweets of the Week

From the Forums

First-Time Caller, Long-Time Listener

A trepidatious Redditor looking to get into investing turns to the forum to determine what the best course of action might be. In this post, users give advice and list the merits and downsides of buying individual stocks.

Which Way Is Up?

In this post, a forum user asks about the continued impact of COVID-19 on the markets and sparks a conversation on what current trends may indicate for the near and distant future.

Into the Close

That’s a wrap on what was yet another bombshell-filled weekend. From COVID numbers to CERB to jobs reports to unpaid taxes, filtering through the noise will be especially challenging. On the plus side, working from home in sweatpants is probably going to be a thing for a while longer.

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Discount Brokerage Weekly Roundup – September 21, 2020

In a “normal” world, fall would be the start of the blockbuster movie launches that viewers expect to enjoy as the weather turns cooler. This, however, is the “new normal.” Instead of movies, IPOs are in the spotlight, with investors watching spectacular IPOs posting incredible numbers and driving FOMO to new heights even as tech starts to show signs of weakness.

In this edition of the Roundup, numbers take centre stage, as we review recent performance stats published by several online brokerages in the US and what it could mean for the current sentiment among Canadian online brokers. Next, we share some exclusive updates to new and exciting features coming this fall to SparxTrading.com. As always, we’ve got a great selection of interesting commentary from investors in the forums and on Twitter.

Painting by Numbers: A Portrait of the Online Investing Marketplace

It’s hard to believe but it has been already/only six months since the market meltdown and subsequent snapback in March. In crossing this milestone, there are lots of questions about how long the “rally” in stocks can continue and whether the surge in online trading has subsided or is still going strong.

This past week, and indeed this month, there have been some important trading metrics reported by US online brokerages that can shed further light into the momentum of online investing among self-directed investors.

Two big firms in the US online brokerage space, Schwab and E*Trade, reported their monthly activity metrics that showed continued strength in the interest of investors to open trading accounts, although it might be fair to say this heightened level of interest is showing signs of plateauing.

Starting first with E*Trade. The iconic online broker reported that its standard trading volume metric – daily average revenue trades (or DARTs) – was up about 2% on a month-over-month basis to 1.04 million daily trades, which is a whopping 256% higher than the same period last year. While robust trading volume was an interesting stat, what really jumped out was the surge in net new retail accounts opened in August at E*Trade, with 80,000 new accounts coming in. This represents a level 76% higher than the previous month and 439% higher than the same point last year.  

The largest online brokerage in the US, Charles Schwab, also saw its trading volume and new account numbers stay elevated – although nowhere near the percentage performance posted by E*Trade. For August, Schwab had amassed $4.5 trillion (with a t) in total client assets and saw a gain of 202,000 new online brokerage accounts, which is a slight dip (-2%) compared to July but still 60% higher than where new-account growth levels were at last year. Trading volume at Schwab still appeared to be significantly elevated, at 1.5 million daily average trades, which is about four times where it was for 2019.

Aside from E*Trade and Schwab, other large firms in the US that report their trading activity metrics regularly include Ameritrade and Interactive Brokers. Interestingly, this past August, the privately held Robinhood also reported trading metrics for the first time, in which they shared staggering figures from a record month in June. However, as of publication, no follow-up post with updated figures has been published.

Earlier this month, Interactive Brokers published its metrics, which showed DARTs were 88% higher than a year ago and new account openings were 374% higher than the same point last year.

Although several Canadian online brokerages are owned by publicly traded banks, the majority of these bank-owned brokerages do not disclose trading data at their online brokerage units in the same depth or with the same transparency as their US counterparts, with, perhaps, one important exception, RBC Direct Investing. The financial reporting for RBC includes reporting for direct-investing trade volumes, which are reported on quarterly. The third-quarter results for their 2020 fiscal year show that trading over the period from May through July was about 125% or so higher than the same point last year.

Six months after the major lows of the stock market in March, it appears that there continues to be very robust interest from investors in participating in online trading and investing.

Across several different data points, the picture emerging is that investors are still hungry for opportunities to grow their wealth via equities, despite the recent downdraft in the tech stocks having probably rattled a few nerves. The recent performance of IPOs like Snowflake, Nuvei, and “magic mushroom” company Compass point to the fast-money crowd looking for opportunities to jump into and out of the market.

On a macro basis, the stretch between now and November, when the US presidential race will be decided (or will it?), is expected to be filled with volatility, which should only be amplified by the increased participation of so many more retail investors. Interesting data on options trading behaviour and volume, for example, points to the “lottery ticket” trade taking place, and investor forums are rife with YOLO and moon-trade talks, which also signal investors are taking outsized risks to chase potentially outsized returns.

Any experienced farmer will say make to hay while the sun shines, and any experienced investor/trader knows it’s never different this time. For online brokerages, whether in Canada or the US, being flexible is going to be key to responding to whichever scenario plays out.  

Good News for 2020: Upgrades to SparxTrading.com Coming

2020 has been a year of big changes. Not many have been good, but despite the sentiment that this year should be over as quickly as possible, there are still a few months – and hopefully some good news – to come.

One piece of exciting news on our end: SparxTrading.com is going to be launching a new web experience for individuals interested in learning about and navigating all things online brokerage in Canada.

When SparxTrading.com first launched (way back in 2011, and officially in 2012), the online investing landscape was considerably different than it is today. Commissions were higher, “trading on the go” meant something very different, and finding information on online brokerages was filled with fragments of keyword- and agenda-driven content.

Since launching, we’ve chronicled the evolution of the online brokerage industry here in Canada (while keeping a keen eye on what’s happening in the US), and over that time we’re glad to report that many of the things that we saw as gaps for DIY investors have either started to improve or have been significantly addressed. One of those items that we saw as an issue was the absence of reliable, objective, up-to-date, and well-organized information about how to choose online brokerages.

Thankfully, there are now sites like GetSmarterAboutMoney.ca that act as credible touchpoints for investor-education basics and have the kind of support and expertise available to improve the financial literacy of Canadian investors (we also love that they share a preference for icons!). Further, there’s also a national strategy on financial literacy being championed by the federal government. And although there is lots of work still to do in educating individuals about investing, there are now some important building blocks in place.

Of course, with over a dozen online brokerages in Canada (and more on the way), there’s still a lot of confusion for consumers and DIY investors alike when it comes to investing online, which is why we’re still as excited and committed as ever to help bring clarity to the landscape. We’re extremely proud to have impacted tens of thousands of Canadian DIY investors who have referenced our simple but effective site as part of their journey into or through online investing.

More immediately, we’re also really excited to be launching a new edition of our Look Back/Look Ahead series, featuring exclusive content and insights from Canada’s online brokerages. This has been an unprecedented year in so many ways, so it will be fascinating to see how different online brokers have fared and what they have their sights set on for 2021. We’ve already got a great response from the industry and look forward to sharing what they have to say about what has been an eventful year.

Finally, over the coming weeks, we will be making some changes in preparation for the rollout of our new digital experience, so be sure to stay tuned to our Twitter account for early previews of features and content.

Here’s hoping that despite the negative news out there in 2020, SparxTrading.com can spark something positive to look forward to in the coming months.

Discount Brokerage Tweets of the Week

From the Forums

Two Roads Diverged

An unemployed musician who has received some inheritance in the form of stocks wonders whether to use it to pay off a line of credit or to hold off until the stocks are back to pre-COVID highs in this post.

Elect to Wait?

In this post, a new DIY investor wonders if they should try to factor the upcoming US elections into their investment timing. Fellow Redditors weigh in on this strategy.

Into the Close

Life in the markets primes you for volatility. Even so, sometimes the pull of gravity on the way down is undeniable. Once again, 2020 has claimed a beacon of hope, with the passing of US Supreme Court Justice Ruth Bader Ginsburg. The shockwave of this event will undoubtedly be felt for weeks to come and will overshadow an already contentious state of affairs in America. Of course, experience in the market also teaches that there is nothing quite as powerful as hope to fuel ambitious change. Stay rational, stay measured, and here’s hoping for some positive progress to start showing up soon.

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Discount Brokerage Weekly Roundup – September 14, 2020

If 2020 has any common theme, it’s that the year has been filled with things you never expected to write or say in a sentence. For example, tech giant Oracle decides to (seriously) buy social media platform TikTok’s US operations. Alas, here we are. Ironically, what has made TikTok culturally relevant has been its ability to reach users with short bursts of content, which is exactly what at least one online brokerage is also hoping to do.

In this week’s Roundup, we put the spotlight directly on one US online brokerage that announced they’re launching a video series and unpack what that means for the online brokerage competitors in the US and here in Canada. From there, we cap off this edition of the Roundup with comments from DIY investors on Twitter and in the investing forums.

Lights, Camera, Snacktion: Robinhood Takes Financial Content to Video

Staying on top of what’s happening in the world of finance is both easier and harder than it’s ever been before for DIY investors. There is no shortage of “news” out there about what’s happening in the markets, but for many self-directed investors, sorting through it all can be daunting.

Cue Robinhood and their latest announcement this past week of the launch of their first video series based on their ultra-successful Robinhood Snacks podcast.

While an online brokerage launching a video series may not seem like a big deal, in this case, the tweet referencing the launch of the series portends what the larger vision for Robinhood’s content ambitions are, and, frankly, now when Robinhood does something, the rest of the online brokerage world is wise to pay close attention.

Starting first with their comment “The ultimate goal is to make finance as culturally relevant as music, sports and the arts.”

This is an incredible throwdown: Bringing the conversation about money and investing into the mainstream in a way that puts it on par with everyday experiences is very ambitious. That said, so too was the prospect of a financially sustainable online brokerage offering zero-dollar commissions.

Given all the content (and not just financial content, either) that’s currently out there, the topic of money isn’t one that generally excites people, nor is there anything that stands out as best in class. If their podcast, which was the result of an acquisition of the popular show Market Snacks in March of 2019, is any indication, Robinhood has clearly struck a chord with younger investors by creating “digestible” news. Their new video format is launching with two updates a week (for now) and capping the show at about three minutes in length, which is just long enough to get viewers in today’s attention-challenged day and age to stick around.

Importantly, the format of Robinhood’s new YouTube/Instagram show will be distinct from the predictable business reporting that is typical of most stock market–centric content. It likely will not talk about the swings of the market so much as it will mirror the format of the podcast, which chooses to focus on stories about public companies.

What is potentially most fascinating about this new venture is being able to watch it grow from the ground level. At the time of publication, the current number of subscribers to the Robinhood YouTube channel is 1.85K. Here are some comparable figures at competing online brokerage YouTube channels:

  • TD Ameritrade – 109K subscribers
  • E*Trade – 49K subscribers
  • Charles Schwab – 43K subscribers
  • Interactive Brokers – 40.9K subscribers

Despite what seems like it could be a hard-fought climb in subscribers on YouTube, the numbers from the newsletter and podcast suggest an accelerated growth for Robinhood on YouTube (without having to pay for advertising). Their podcast has 1.9M+ monthly active listeners, and there are 20M+ subscribers to their newsletter, both of which could easily help boost subscribership to the YouTube channel in a hurry. A quick search of other online brokerages with podcasts turned up only TD Ameritrade, which had “market data”–style reporting.

With no real competition on podcasts, Robinhood has gained mindshare with a huge audience, which no other online brokerage can replicate overnight. Moreover, reading through the Instagram comments on the announcement of the video version of the Robinhood Snacks podcasts revealed just how enthusiastic the “Snackers” (present company included) are with the product.

What does all of this mean for online brokerages?

With significant consolidation taking place in the online brokerage industry in the United States, the number of unique players has narrowed. Even with the scale of those new enterprises, Robinhood, through pricing and now through content, is establishing their brand as the one to beat amongst their peers, and especially amongst millennials and new investors.

Even though their goal of bringing financial content into cultural relevancy seems far-fetched, the reality is they have significant momentum on their side to do so. Unlike their peers, Robinhood is distinct and attractive to a whole new generation of investors.

As it pertains to Canadian online brokerages, the gap between what is happening in the US as far as features, user experience, and pricing is only widening.

From a content perspective, there really isn’t anything being produced by Canadian discount brokerages that materially rivals Robinhood for Canadian DIY investors. Of the major online brokerages in Canada, only TD Direct Investing’s parent TD has a dedicated show via their MoneyTalk channel that has consistently provided market commentary and analysis. Recently, National Bank Direct Brokerage launched a “beginner investor” education series with Larry Berman (of BNN fame), which, while short and informative, is not really the same kind of content that investors would continue to tune in to over the long term.

Although most major online brokerages in the US already have some kind of video content going, the reality is that Robinhood’s launch into the YouTube and Instagram video channels will be highly problematic for other online brokerages to compete directly against.

Robinhood’s accelerating popularity in the US also means they are being watched (and listened to) by Canadian DIY investors, and as a result, Canadian online brokerages will be increasingly challenged to offer comparable kinds of experiences if they truly want to win over their clients.

The longer that larger or existing Canadian online brokerages overlook the importance of compelling content, the greater risk they leave themselves open to if, or potentially when, Robinhood decides to enter a new global market. Of course, it needn’t necessarily be Robinhood that comes here directly that could pose a challenge to the mainstream Canadian online brokerage market. It would just take an online brokerage willing to be thought of as the “Canadian” version. Case in point.

Discount Brokerage Tweets of the Week

From the Forums

Meme, Myself, and I

A Redditor who has learned a lot from the forums is now concerned that they bought into the meme-ification of VGRO in this post. Fellow forum users discuss how “just buy XGRO/VGRO” has become such common advice and their stance on the topic.

Rise and Grind

In this post, a forum user asks how fellow DIY investors keep their spirits up when saving and investing. Replies to the post offer a look into their personal savings philosophies as well as the age-old advice “comparison is the thief of joy.”

Into the Close

That’s a wrap on this smoky West Coast edition of the Roundup. After a surreal run in stocks, it looks like the stretch from now until the presidential election in the US is going to be filled with all kinds of uncertainty. Typically markets price in as much of the future as they can see, and even if they have made some kind of determination of who will be in the White House, the reality is that a lot can (and will) happen in the next 50-ish days that can’t be predicted. On the plus side, anyone looking for a different kind of portfolio volatility can once again turn to fantasy football.  

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Discount Brokerage Weekly Roundup – August 24, 2020

It’s funny that gravity is often associated with apples falling. This week, we’re seeing Apple as the symbol of defying gravity. Of course, the iconic tech brand isn’t the only one defying gravity with markets hitting new highs – and apparently, some online brokers are too.

In this edition of the Roundup, we review some interesting news related to an increasingly popular online brokerage that has decided to flex their recently growing muscles against their competitors. From there, we highlight an interesting online investor education event for options enthusiasts who might just find an extra reason to show up to class in September. As always, we cap things off with some colourful commentary from DIY investors on Twitter and in the investor forums.

Robinhood Finds Riches with Latest Raise

Of the many twists that nobody really saw coming in the online brokerage space in 2020, having the most financially successful year (possibly ever) would not have been one of them. And, yet, here we are.

With just a few more months left in the year, it is hard to characterize 2020 as anything but a runaway success for many online brokerages in Canada and the US, especially for Robinhood – who has firmly locked in their status as the breakout star of the online brokerage world.

This month, Robinhood, which is not publicly traded (yet), decided to flex by reporting its June trading metrics. Robinhood customers racked up a staggering 4.3 million trades per day during June – higher than all of the major existing online brokerages and, in some cases, by a lot. TD Ameritrade, which came in second behind Robinhood in terms of DARTs, saw clients place 3.84 million trades per day; Interactive Brokers and Schwab both clocked in at 1.8 million trades and E*Trade at 1.1 million trades.

Why Robinhood chose to release these figures now is a bit of a mystery. However, they may be laying the groundwork for their eventual plans to IPO and what better way to demonstrate value to the marketplace than with the core metric that many online brokerages are evaluated against. Perhaps not coincidentally either, Robinhood also successfully closed another round of financing (series g) this year, raising 200 million dollars and vaulting their company valuation to 11.2 billion dollars from 8.6 billion just a few months ago.

What does this mean for the industry as a whole and for Canadian discount brokerages in particular?

First, it reinforces the notion that the path to success in the online brokerage industry points in one clear direction: scale. Without it, the machinery of the online brokerage business model simply cannot achieve the level of activity required to generate profitability. Relevancy is measured in how many accounts you have, the assets under management and how much trading activity takes place on your platform. Other metrics, however, which were also released by Robinhood on social media, point to the strength of their content infrastructure which puts them well beyond the reach of any of their peers.

Second, user experience is a big picture concept – pricing has to match the platform. Robinhood was built around and for a defined audience. It was built mobile first. It was built for younger investors first. The kinds of services and experiences these younger investors found more appealing were the areas in which they focused. Perhaps more impressive than their rise in numbers has been the fact they managed to create a powerful brand. The recent purchases of TD Ameritrade ($26 billion) and E*Trade ($13 billion) reflect a price that includes the value of the brand. The most recent valuation of Robinhood reflects a brand that has room to run. And, with a brand, it enables a premium to be paid to belong to the ‘club’ that is Robinhood.

Third, there is a clear disconnect in the online brokerage industry around the “zero commission” brokerages like Robinhood (and in Canada, Wealthsimple Trade) and whether they can be considered peers/competitors to online brokerages.

This past week, for example, financial information publisher Kiplinger released its online brokerage rankings in the US and surprisingly, despite the numbers of users on the platform, Robinhood was left off the list of online brokerages in the US that were considered for part of the review. The reason Robinhood was not included was “the mobile-first brokerage doesn’t offer trading of bonds or mutual funds—key investment vehicles for many of our readers.” A similar tone appeared in reference to Wealthsimple Trade in the latest Moneysense online brokerage rankings of Canadian discount brokers. According to the Moneysense review, “Wealthsimple Trade, which has been wrongly labelled by many as an online brokerage firm as it only offers a mobile application with limited functionality, resources, account types, product, market information and services expected of a Canadian discount brokerage firm.”

The view that the ‘mobile first’ approach or limited feature set are not as “traditional” may be true but it is precisely why they are as popular as they are. Further, if these firms are not ‘discount’ brokerages in the truest sense when the commission rates per trade are now as low as possible, then it begs the question – what are they?

Popular media, for better or worse, has already decided these trading apps belong to the same category of financial service as an online brokerage. Clearly, consumers are not shying away from the limited feature set either. Valuations, media mentions, metrics and consumer sentiment are all pointing in the same direction with what Robinhood has produced thus far. For any existing online brokerage or ranking to exclude firms like Robinhood or Wealthsimple Trade from their planning, seems like they do so at their own peril.

Options Education Day Goes Virtual

With September just around the corner, so too is chatter of back-to-school. While the annual ritual of heading back to class is mired in controversy because of COVID-19, there exists a pretty clear alternative to meeting in person for educational activities.

For those looking to learn about options trading, the good news is that the Montreal Exchange is taking their one-day Options Education Day workshop into an online format for the second time this year. Filled with interesting content for beginners and intermediate investors, Options Education Day is typically a great way to learn about options and interact with other like-minded investors. Another standard feature of the event is the opportunity to interact with the sponsors, who in this case, are largely made up of Canadian discount brokerages.

The next session of the virtual Options Education Day will be taking place online on September 12th from 12pm to 3:30pm ET.

Canadian discount brokerages sponsoring this event include:

While most of these sponsors are fairly regular faces at these events, one relatively surprising online broker on this list is HSBC InvestDirect. For the most part, HSBC InvestDirect has flown under the radar when it comes to a lot of the activities that other brokerages typically do, so while this may be a fairly low-profile event, it is nonetheless interesting to see HSBC InvestDirect stepping forward to participate, in particular, at an event focused on options trading.

Given the high levels of investor interest and volatility in the market, options trading – while complex – represents a very profitable revenue source for many online brokerages in terms of trading commissions, even more so than with trading stocks.

With Options Education Day moving to a virtual format, attendees from across the country will be able to connect simultaneously, so in some ways, it will be an opportunity to connect with a larger audience than would be possible in person. Online brokerages stand to save quite a bit of money in terms of travel expenses and materials.

One underreported perk for attendees of these events is that there can be online broker specials offered for new account sign-ups. While there is no guarantee of a deal showing up, there’s a decent bet that the brokerages sponsoring will want to provide something to entice the attendees.

Check out the Options Education Day registration page for more information.

Discount Brokerage Tweets of the Week

From the Forums

Too Much of a Passive Thing?

A Redditor poses the question of what the impact of the popularization of passive investing might be in this post. Fellow forum users weigh in, discussing what this means for the market and for active traders.

Reimbursting a Bubble

Security is serious business for all Canadian online brokerages. This post on Reddit caught the attention of a lot of readers who were interested to learn about reimbursement fine print at a popular Canadian brokerage.

Into the Close

That’s it for a very heady week in the markets, from markets continuing to push higher and Apple continuing to make trillion-dollar market caps seem normal, to all kinds of showdowns looming on the political front and sports in hyperdrive. Wherever your focus happens to be, here’s hoping you get a better view of where things go next.

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Discount Brokerage Weekly Roundup – August 10, 2020

There’s nothing quite like being able to stay cool on a hot summer’s day. Whether it’s with a cold beverage, a spot in the shade, or just taking it easy, everyone has their own preference when it comes to handling the heat. One group not sitting around resting this summer, however, is Canadian discount brokerages.  

In this summertime edition of the Roundup, we take a look at the most recent Canadian online brokerage rankings – who won and what interesting stories emerged from the rankings data. Also on the pool deck, a small but interesting development in the investor-education arena that may be a signal of things to come this fall. As always, the fan favourites of forum chatter and DIY investor comments from Twitter will help close things out.

Diving into the 2020 MoneySense Online Brokerage Rankings

This past week, MoneySense’s 2020 online brokerage ratings were in the spotlight courtesy of a press release from Qtrade Investor, the winner of the best online brokerage title in this year’s ranking. Although the results were published in mid-July, and there were mentions of the accolade on social media, the official press release provided additional context around the results and the win for Qtrade Investor.

This is yet another major recognition for Qtrade Investor in terms of rankings awards in the 2020 season. Earlier this year, Qtrade Investor took top spot in the coveted Globe and Mail online brokerage rankings, and in December of last year, Qtrade also earned first place in the Surviscor online brokerage experience rankings. Suffice to say, Qtrade has found itself atop (or close to the top of) many of the most important online brokerage rankings for the better part of a decade.

As with previous rankings, the data from this year’s MoneySense Canadian online brokerage review was generated by financial services research firm Surviscor, which also conducts its own set of reviews for the Canadian online brokerage industry. Data underlying the review comes from the synthesis of an extensive questionnaire, assessments of the platforms themselves, and tests of “service interactions” over the span of a year. Firms are scored across seven different sections, and the total score assigned is based on weightings in each category.

Though rankings are a staple presence in how online investors make decisions about online brokerages, their greatest appeal is also one of their biggest limitations. At the heart of the issue is that most online broker rankings simplify the analysis across a number of features, and many of the features being analyzed are highly subjective and therefore subject to interpretation. Also, different online brokerage rankings measure success differently. The methodologies are different, and what is being measured is often also different enough (and online brokerages themselves close enough) that small variations in how online brokers are scored can present differing results. Case in point, the fact that Qtrade Investor can appear first in three high-profile rankings (The Globe and Mail, MoneySense, and Surviscor) but not at all in the J.D. Power 2020 Canada Self-Directed Investor Satisfaction Study suggests that online investors turning to rankings do need to ask (or rankings creators need to report on) what the rankings measure and why all Canadian online brokerages are not included.

Although the headline of Qtrade Investor taking top spot in the most recent rankings is important, what also stood out as interesting about this year’s MoneySense rankings were the categories that were reported on. Specifically, the following:

Best online broker for feesDesjardins Online BrokerageNational Bank Direct Brokerage
Best online broker for user experienceQtrade InvestorQuestrade
Best online broker for ETFsQtrade InvestorNational Bank Direct Brokerage
Best online broker for market dataTD Direct InvestingQtrade Investor
Best online broker for mobile experienceQuestradeBMO InvestorLine
Best online broker for initial impressionsQuestradeTD Direct Investing + National Bank Direct Brokerage
Best online broker for customer serviceQuestradeQtrade Investor

One of the most highly prized categories for the discount brokerage space is, without question, commission fees. As such, the biggest surprise was in the fees category that saw two close online rivals, Desjardins Online Brokerage and National Bank Direct Brokerage, place first and second, respectively. Despite their strong showing in this category, their absence from the top spot in the overall ranking illustrates that, clearly, low fees are not the only factor at play in determining the rankings.

Another interesting observation in the latest MoneySense discount brokerage rankings is that the closest rivalry brewing among online brokerages isn’t at the bank-owned brokerage level but between Questrade and Qtrade Investor. Even though Qtrade Investor did take first place this year, they reclaimed the title from Questrade, who took top spot last year. Also, there were two important categories that these two firms competed closely in: user experience and customer service.

Interestingly, Questrade also took top spot for best initial impression and best mobile experience, which are key features for younger investors. In the current COVID-19-influenced market, these features are especially important to the new wave of active and engaged investors and traders participating in the stock market.

The third, and perhaps most controversial, point of interest is the decision on the firms not included in this year’s rankings: Interactive Brokers and WealthSimple Trade.

While the MoneySense rankings do target the “average” investor, the reality for the online investing marketplace in Canada is that these two firms are popular with DIY investors. And, given the firms’ popularity, one of the features of the rankings that would help clarify why these two firms didn’t fit the bill is some further explanation on what the “average investor” experience is characterized by.

The reasons cited for not including Interactive Brokers were that “it is not designed for an average investor and it simply has not fully Canadianized its offering.”  

To be fair, in the case of Interactive Brokers, founder and former CEO Thomas Peterffy has often characterized the Interactive Brokers retail client as typically more sophisticated than the “average investor” in terms of their knowledge about the markets and investing, as well as in the kinds of products traded and the volume of those trades. That said, the components that helped the brokerages in the coveted category of fees referenced options trading, a product that is more likely/appropriate for sophisticated investors. Further, of the five investor profiles used in the analysis, trading frequency would also (presumably) include a very active category. On those two points, it seems like decisions were made outside of what would be the “average investor.” Further (and as seen below, too, with Wealthsimple Trade), investors are hungry to trade US markets as much as they are Canadian ones. Without more information on what being “Canadianized” refers to, it is harder to understand the rationale for excluding them.

In the case of Wealthsimple, it also seems to be a controversial decision not to include them as a competitor online brokerage to incumbent discount brokerages because of limitations to certain features. Specifically, the article stated: “we do not see why a novice investor would even consider the platform as the cost savings of dollars per trade, in our opinion, is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.”

As a mobile-first platform, they would arguably provide a strong mobile user experience (something that incumbent firms would be weak on by comparison) but rank poorly when it came to the non-existent desktop platform. Further, simply because other firms offer features that Wealthsimple Trade does not, it doesn’t mean the features being offered are done well.

It was the last portion of the sentence in reference to Wealthsimple Trade that really stood out, in which the article stated that the online brokerage did not provide what was “expected of a Canadian discount brokerage firm.” By some measures, the data would disagree.

The surge in new accounts opened at Wealthsimple Trade this year suggests that, perhaps, what the market of online investors expects from a discount brokerage is changing. And, therein lie the limitations of the online brokerage rankings: these rankings often contain built-in expectations of who can/should participate, based on eligibility criteria. The authors believe (and state) that, in their opinion, Wealthsimple Trade “is not worth the lack of guidance, education and market depth, to name a few, required by a novice or average DIY investor.” The counter-argument could certainly be that even if those features were present, if they were poorly designed, they would confer no advantage to an investor and therefore not justify the cost of inflated commissions.

At a zero-commission level, investors are savvy enough to know there is clearly a trade-off – and one that the market of online investors in the US has been happy to make. Here in Canada, though the numbers are small, they are worth taking seriously. Wealthsimple Trade has grown to about 180,000 users, for example.

Perhaps the most compelling challenge to the reasons for being excluded is found in the Wealthsimple Trade feature requests section. While desktop access is the most requested feature, nowhere on the requested list of features is “education” or “guidance” or “market depth.” The fact that actual customers have spoken and not mentioned most of the features that disqualified Wealthsimple Trade from being included in this ranking is important.

Finally, and perhaps most ironically, Wealthsimple hasn’t “Americanized” enough (according to features requested by their clients). So, the fact that Interactive Brokers hasn’t “Canadianized” enough seems to run contrary to what an important segment of the market is demanding, which is US trading access. The fact that Interactive Brokers does this extremely well – even for their Canadian clients – means that it is probably worth explaining further what “Canadianized” really means and whether it is grounds for exclusion.

National Bank Direct Brokerage Gets Back to Investing Basics

One of the interesting developments to surface this past week has been in the investor-content space – specifically as it relates to investor education. During COVID-19, National Bank, which is parent bank to National Bank Direct Brokerage, has significantly ramped up their investor content online, in particular doing video updates on the state of the economy and addressing questions about investing and personal finance.

While the majority of this content featured senior analysts, economists, or executives from National Bank, something new emerged this week on video as National Bank Direct Brokerage launched what seems to be a new series on the basics of investing on YouTube featuring the popular investing personality Larry Berman (featured guest of BNN’s Berman’s Call).

There aren’t too many Canadian investing “personalities,” but Larry Berman is certainly one of them. For many years, Berman has held his famous roadshows across Canada and was sponsored by Scotia iTrade and BMO ETFs. This latest development, in which he is offering exclusive content for National Bank Direct Brokerage, will undoubtedly leverage his recognizable and trusted presence in the online investing world on BNN in a new medium. What will be interesting to watch, however, is whether he will connect with younger audiences the way that he has typically connected with older investors who were the mainstays of his roadshows and who often call in to his BNN show.

With this latest development, it seems like investor content will once again become a place for Canadian online brokerages to come back to. The COVID-19 pandemic has likely changed the demand prospects for online trading. As such, appropriate content for investors will be more important and influential to finding and engaging online investors.

Discount Brokerage Tweets of the Week

From the Forums

Time Out

In this post, an investor turns to the forums to determine if they should sell now, particularly with gold at an all-time high, or wait a while to minimize their time off the market.

Dividend and Conquer

A DIY Investor wonders if it may be wise to focus on ETFs with high dividends. Fellow Redditors break down the mathematics and recommend instead focusing on total return in this post.

Into the Close

That’s a wrap on another week. The temperature isn’t the only thing starting to heat up – it looks like feature and promotion action at Canadian online brokerages is also starting to come back online after several months on pause. Suffice to say there are now even more things to tune in to, which is going to make justifying watching all the wonderful pet-driven content and dance videos that much harder. Stay cool!

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Discount Brokerage Weekly Roundup – August 4, 2020

Dessert-lovers, rejoice! This past week was a great time to enjoy the fruits of investing labour, with tech giant Apple announcing they will be initiating a 4:1 stock split, as well as the tech-heavy Nasdaq pressing into new all-time-high territory.

In this week’s Roundup, we report on the current state of the deals/promotions drought and consider what it may signal for the industry. From there, we continue to look at the role that promotions can play to attract new clients or help hang on to existing ones. As always, we’ve included the highlights from tweets and investor forums.

Striking Out on Deals

In case you needed to be reminded, it’s not still March, and August is (amazingly) here. Time isn’t the only thing that has been distorted this year, however.

For DIY investors, the stock market’s nosedive and subsequent meteoric recovery have all but defied conventional wisdom. And, regardless of why the markets may be continuing to push higher, the reality is they continue to do so. As a consequence, DIY investors are continuing to open new online brokerage accounts at a higher than “normal” pace.

Ironically, after years of facing margin pressure because of rising technology costs and declining revenues from price wars, online brokerages (at least those in Canada) did not seem to be prepared for the surge in interest when it finally came in. Business has been so good at Canadian online brokerages, in fact, that many of the systems serving new customers cannot keep up.

Customer service lines at Canadian online brokerages are painfully slow, and technology platforms have stumbled through the spring and early summer.

The unlikeliest of all casualties amidst this activity: online brokerage deals.

At the outset of August, yet again, there have been no new official mass-market deals launched or offered for online investors that aren’t part of standing offers. While the beginning of a new month offers no guarantee that an online brokerage deal would launch, for the better part of the last decade, the beginning of a month has provided online brokerages the convenient starting point for a promotion. And for most of that time, brokerages seized on that opportunity.

After the conclusion of RSP contribution season (in early March), we have witnessed a steep pullback in the number of online brokerage deals and promotions being offered to DIY investors in Canada. It is no coincidence that this pullback coincided with the record trading levels and interest in opening online brokerage accounts, but it does beg the question: when demand for online brokerage accounts shifts so significantly, what else gets taken off (or put on) the table?

For the moment, Canadian discount brokerages appear to be content with the fact that demand for account openings remains strong enough that incentive offers are not required. Furthermore, promotions would only strain systems further and create additional backlogs for applications for accounts as well as delay the ability to get investors up and trading quickly. Though it sounds counterintuitive, the reality is that there really can be too much of a good thing.

Viewed from a slightly different perspective, however, the lack of deals activity during the past several months might be more a symptom of the lack of scalability of systems than some shrewd calculus to boost earnings. Conversely, the fact that Questrade has retained their cash-back (referral program) promotion and their standing commission-free trading deals implies that they have the technological capability and workflow to support bringing on a high volume of new clients.

In addition to the lack of new deals, there was one deal that officially met an early retirement last month: the referral offer from Qtrade Investor.

Removing a referral offer is an interesting decision on a number of levels. First, this category of deal enables online brokerages to determine how much they are willing to compensate individuals for a referral. Referrals are one of the most potent ways in which financial service providers can earn new business, and as such, it was curious to see Qtrade Investor pull the plug on this offer.

The second reason it was curious to see this promotional offer wind down was because of competition. With the Qtrade promotion now deactivated, this leaves BMO InvestorLine, Questrade, and Scotia iTrade (and, technically, Interactive Brokers) with a referral offer.

It is worth noting that Questrade currently sits unchallenged in terms of deals, so hands down they are getting an unparalleled amount of exposure for commission-free trade and cash-back offerings. For the moment, it appears that online brokerages are pushing their “switch to us” campaigns instead. Ads for TD Direct Investing, one of the largest online brokerages, have already surfaced again.

As distorted as time may be for many, there are (thankfully) hard deadlines for individual investors to contend with – such as the end of the calendar year, which is relevant for TFSAs and capital gains/losses. There is also the next RSP contribution deadline, in March 2021, which may seem far off now but which online brokerages must start early to plan for.

It is unlikely that online brokerages are abandoning incentive offers altogether, heading into the latter portion of their fiscal and calendar years, but there may be a much more cautious tone leading up to the US election (in November) and because of the general market dynamics of late.

More Than Just a Promo

Even though no official new offers were launched for Canadian DIY investors to start the new month, that doesn’t mean there weren’t some interesting developments on the promotions and deals front worth reporting about. In fact, quite the contrary.

One of the most exciting/interesting pieces of news on the promotional front was an article referencing a move by Interactive Brokers in which they telegraphed their intention to give away shares in their company to attract new clients.

Perhaps it is a move akin to Robinhood offering free stock in some big-brand public companies as part of the incentive offer to join Robinhood, but this doesn’t take away from the ability to get on the radar of investors by doing so.

Interactive Brokers’ decision to attempt to provide stock represents, in itself, the confidence in their own share structure and, most importantly, their own brand. Whether it succeeds or falls short of the intended goal, this latest move by Interactive Brokers is a reflection that promotions aren’t just limited to cash-back or commission-free trading – they can also take the form of equity. Though not something commonly done in Canada, with potentially a second online brokerage offering this up in the US, it might represent an interesting way to control the cost of acquisition of new clients while (in the case of Interactive Brokers) adding evangelists who, as shareholders, have additional incentive to see the brand succeed.

While the story about Interactive Brokers in the US prepping to issue shares as part of a new promotion continues, there was another development in the Canadian online brokerage space, with CIBC Investor’s Edge, that also highlights a different way in which promotions are being used.

Over the past two weeks, CIBC Investor’s Edge was in the process of rolling out a new trading platform that proposed to add a significant refresh to the platform’s look and feel, as well as to improve the functionality. Unfortunately, things did not go according to plan.

According to social media posts from Investor’s Edge clients, the rollout of the new trading platform caused significant interruptions to trading, so much so that they issued a blanket commission-free trade offer to all of those account holders who were deemed to have been impacted by the service outages.

An incident of this magnitude at a major (bank-owned) online brokerage is a rare event. However, the fact remains that the duration and magnitude of this impact are likely what drove the decision to waive commission fees for a two-week period.

Although it cannot officially be called “commission-free” trading the same way it is at other brokerages, it nonetheless does establish that one of the options available to online brokerages to generate goodwill with their customers is via commission-free trades. Of course, the premise in that offer is that the platform would be stable enough to enable DIY investors to be able to execute trades.

The takeaway for both Interactive Brokers and CIBC Investor’s Edge is that ultimately, the return on investment for these unique offerings has to be there for the discount brokerage.

In the case of Interactive Brokers, there are not many details available yet, but offering stock is a unique way to achieve a lower client-acquisition cost without directly impacting profits. With respect to CIBC Investor’s Edge, there is clearly an attempt by the brokerage to repair the relationship with clients who were negatively impacted. The math to keep these clients justifies this course of action, but it also flows upstream into investing in the technology to avoid (or minimize the risk of) outages.

From the Forums

Bank of Dad

In this post, a Redditor asks for advice on the best way to teach his young son about investing, using $400 as the starting point. Fellow forum users suggest savings accounts, GICs, RESPs, and the ever-popular “Bank of Dad” – and lament wasting their childhood money on candy and toys instead of learning useful skills for the future.

Neither a Borrower Nor a Lender Be?

A Redditor asks in this post whether it’s a good idea to borrow money to invest in the markets right now. A long and lively discussion ensues, with commenters weighing in on everything from market crashes to midlife crises.

Discount Brokerage Tweets of the Week

Into the Close

With a shortened trading week for investors in Canadian stocks, all eyes for market action are now on the US market. As it happens, there’s all of a sudden a lot more sports around to distract/pay attention to. What this means is that there may be a gradual easing off of market participation by online investors since (SO MANY) sports schedules are intensely packed in. Could that be what finally tops out the market?

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Discount Brokerage Weekly Roundup – July 27, 2020

For anyone keeping score at home – July is almost over. The strange pace of time that COVID-19 has imparted on the world is equaled only by the strange behaviour in stock markets that, because of COVID-19, have seen major indices fall off a cliff then sharply rise close to the edge they fell from. For online brokerages, waves have taken on a different meaning this summer, and in looking down the track to the end of 2020 (thank goodness), preparation should be on the list of important summer activities.

In this edition of the Roundup, we look at one story with several important facets. The latest earnings from US online brokerages are in, but the real story appears to be not where we’ve been but rather where things go from here for online investors. Also on the docket, interesting chatter from DIY investors on Twitter and from the forums.

Breaking Fad: Is the Retail Investor Frenzy About to Expire?

The story on the meteoric rise in trading by “retail investors” over the course of the COVID-19 pandemic continues to gather steam. Ironically, while we’ve been covering this news since March of this year, the fact that it is now hitting the “major” news outlets could be a signal that the retail frenzy is about to lose considerable steam.

This past week, there were several major US online brokerages that reported their quarterly earnings. TD Ameritrade, E*Trade, and Interactive Brokers all showcased record-breaking performances in terms of trading activity as well as in terms of account openings and earnings. In contrast, although the largest online brokerage in the US, Charles Schwab, experienced similarly large volumes of activity, revenues and earnings missed estimates. All told, however, it was another eye-popping quarter filled with people coming in droves to trade stocks.

Not to dismiss the earnings and performance metrics, but much of this data is looking in the rear-view mirror at what’s already happened. At a time when so much news is happening so quickly, it’s important to stay on top of what’s actually taking place.

Beyond the numbers, however, the bigger stories emerging from the narrative around online investing appear to be in how different, and influential, stakeholders are covering the online brokerage space, and what that means for the near-term future for the industry in the US as well as in Canada.

The first interesting angle on the coverage of the retail-trading frenzy came from one of the most influential voices for investing and trading in North America, CNBC. And what stood out was as much what was said as what wasn’t.

Last week, online brokerage Robinhood was casually referenced as one of “the major online brokers” in an article by CNBC, and Interactive Brokers was not. Though this might have been just an omission (Interactive Brokers and Robinhood were mentioned as major online brokers in another article by the same author), the fact that Robinhood is now being counted among the “major” publicly traded online brokerages (even though it is not yet publicly traded) arguably reflects a step change in who they are as a firm and in the influence their clients have on market direction.

Whatever the calculus was, Robinhood’s vaulting to the status of “peer” of the much larger incumbents means that growth is happening much faster than anyone had planned for. Perhaps this is behind the decision to delay Robinhood expanding to the UK (for now).

Two important facts stand out as important context: First, despite the best account-opening numbers from any of the publicly traded online brokerages in the first six months of 2020, Robinhood handily beat them by adding over 3 million accounts. Second, Robinhood did this despite peer firms taking commissions to zero, meaning that consumer preference likely played a decisive factor in online investors picking Robinhood over Schwab or Ameritrade or E*Trade.

For US online brokerages, it should be abundantly clear that the rise of Robinhood signals that they cannot afford to discount “millennial” (or future) investors anymore and that platform adoption is going to be heavily influenced by user experience – in particular on mobile. While this shouldn’t be news to anyone in the online brokerage industry by now, the fact that so many online brokerages have seen their market share erode or be captured by Robinhood, especially in the millennial segment, means that other online brokerages are going to be playing catch-up.

Overlaying what’s unfolding in the US online brokerage market with the situation in the Canadian online brokerage space, it’s interesting to see which Canadian discount brokerages are putting a priority on design and user experience ahead of other long-standing “standard” features. Arguably, it’s a short list.

Both Wealthsimple Trade and Questrade have managed, from a feature and accessibility standpoint, to successfully reach and appeal to younger investors, and the former is clearly taking many of its cues from Robinhood. Like Robinhood in the US (but without the same degree of scale of impact), Wealthsimple (and especially Wealthsimple Trade) is being talked about in the media as it relates to investing online. Other Canadian online brokerages: crickets.

Perhaps the question that incumbent online brokerages on either side of the 49th Parallel need to wrestle with is given Robinhood’s gains with the millennial segment, how hard will it be for them to appeal to the older or more mature investor segment? Can existing online brokerages move down market faster than Robinhood can move up? Does the same hold true for Wealthsimple Trade, even though they still have lots to develop to compare fully with online brokers in Canada? Sounds a bit like an innovator’s dilemma if ever there was one.

The second interesting angle relating to the coverage and response to the retail-investor market comes from assembling the fragments of highly seasoned and influential voices in the online investing market. In particular, it was the notes of concern expressed by the head of the NYSE, the founder of Interactive Brokers, as well as a slide from the deck of Schwab’s business update showing sentiment among investors that paint a curiously grim picture just as the S&P 500 is within spitting distance of its all-time high.

Consider the following:

In a recent interview with CNBC, the president of the NYSE, Stacey Cunningham, stated: “I am excited to see the retail investor engaging in the market, but I’m also concerned if they’re not doing it with information and also not understanding the risks associated with it, because you certainly don’t want to see retail investors get hurt because they didn’t understand that markets can go in both directions and they can go pretty quickly.”

In an interview with CNBC regarding earnings, Thomas Peterffy, founder of Interactive Brokers, labelled the action in the current market environment as “crazy” and characterized trading levels as unsustainable over the near term.

According to the latest business update from Schwab, investor sentiment continues to track lower despite markets’ substantially rebounding from their lows.

Finally, there’s the growing chorus of experienced market observers, analysts, and influencers who are also increasingly skeptical of markets’ powering higher and the sustainability of that move.

Aside from the latter (typically pundit) view, there is a cause for concern when individuals representing businesses that would directly benefit from more trading state they’re concerned about the levels of trading taking place.

While the pace of retail-investor activity is almost certainly going to decline, when and how rapidly is simply a waiting game. It will be interesting to see whether or not the decline will once again entice investors back into the market the way the first drop did in March or, as the concerned voices seem to suggest, whether retail investors will get badly burned by a contraction. Regardless, any kind of volatile downward move is likely to generate significant trading activity and put pressure on technical as well as service systems across the online trading ecosystem.

There is already discussion of preparing for a second wave of COVID-19 outbreaks here in Canada, and with the current situation in many states of the US unpredictable (or just dire), the risks for continued pandemic-related economic (and health) impacts seem likely. What this directly means for online brokerages in Canada is that their trading systems and customer service delays should be prioritized to be fixed, because there are a lot of nervous investors holding into these rallies.

Indeed, DIY investors must also be prepared for market volatility. The track record for most online brokerages in Canada during March was that there were untimely delays or outages during massive volatility days. Time has passed but investors (as shown in Twitter comments) tend to remember moments when their online brokerage platform or customer service experience let them down.

As much as commission cost and user experience are clearly going to be driving the bus when it comes to DIY investor interest, uptime (aka reliability) and wait time are going to keep clients on the bus, even (and perhaps especially) when the road gets bumpy. If things go awry for online investors in the US, at least they can cite not having to pay commissions, but here in Canada, the expectations for performance and reliability are directly tied to the price. And, in a world where commission price exists (in spite of zero-commission alternatives), there is little room (or patience) for things going wrong.

Discount Brokerage Tweets of the Week

From the Forums

The Grass Is Always Greener

A Redditor asks if there’s a benefit to investing in Canadian versus American ETFs in this post. Commenters break down factors such as commissions, exchange rates, and long-term market patterns to tackle this big question.

A Rare Stake

In this post, a potential investor asks for advice on whether or not they should buy shares in the company they’ve been at for the past two years. Fellow forum users give their perspectives and offer insights into the company’s possible motives.

Into the Close

That’s a wrap on what has been an insightful few weeks in the online brokerage space. While the US market has dominated the headlines, there’s still activity taking place among Canadian brokerages, which will start filtering back into the mix. In the meantime, with gold and bitcoin creeping past key psychological hurdles, and more stimulus money in the works (in the US), it looks like the music is still going for just a bit longer.