Online Trading Surges 47% in 1st Quarter

Online trading volume surged 47% in the first quarter, a pace indicating that by the end of next year, 1 of every 4 stock trades might be made by an individual investor trading over the Internet, according to a report released Tuesday.

The study by Bill Burnham, an electronic-commerce analyst at Credit Suisse First Boston, shows that Internet investors now account for 15.9%, or almost 1 in every 6, equity trades. That’s up from 10.7% a year ago.

An average of 499,476 trades are made each day by small investors trading via the Internet, almost double the number they did just six months ago, the report said.

The jump in trading volume was clearly fueled in large part by the strong stock market. The Nasdaq composite index climbed 12.3% in the first three months of 1999 while the Dow Jones industrial average was up 6.6%.

Internet stocks themselves, which are often favored by online investors, did far better. The CBOE Internet index leaped 49.1% in the first quarter.

However, other factors contributed to the surge in online trading, Burnham wrote.

Online investing has acquired a cachet that has lured newcomers. More important, technological advances such as Web sites that let customers personalize the data they receive, has spurred existing customers to trade more frequently. While online volume jumped 47% from the fourth quarter, total volume on the Nasdaq Stock Market rose a mere 5.3%, the report said.

“It’s as though online transactions have not only become accepted as secure but also ‘cool,’ ” Burnham wrote.

The average commission charged by the top 10 online firms held steady at $15.75 for the fourth straight quarter.

Charles Schwab continued to hold the biggest market share among online brokers with 27.5% of online trades, according to the report. E-Trade with 12.9% and Waterhouse with 11.6% followed.

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The Online Battle

Charles Schwab continues to lead in market share for online trading, followed by E-Trade and Waterhouse. Figures are through this year’s first quarter.

Charles Schwab: 27.5%

E-trade: 12.9%

Waterhouse: 11.6%

Datek: 10.0%

Fidelity: 9.3%

Ameritrade: 8.4%

DLJdirect: 3.6%

Quick & Reilly: 3.0%

Discover: 2.8%

Others: 10.9%

Note: Online trading increased its share of the total market during the first quarter and now accounts for almost 16% of all equity trades.

Source: CS First Boston