Discount Brokerage Weekly Roundup – April 7, 2017

In the same week that the electric vehicle maker Tesla became the most valuable US automaker, a marijuana ETF launched and the world inched closer to war. Nevertheless, stock markets continued to price in the myriad of opportunities and risks to enable capital to flow into fueling the world of tomorrow (assuming of course the world is still here, which markets suggest is the case). For online brokerages and DIY investors alike, it continues to be an interesting time to be in the markets with stories that are finally getting investors excited and a little afraid.

This week’s roundup looks at the latest update to the deals section with the first few days of the new month providing an early look at how the market is shaping up for promotions. From there, we look at another popular discount brokerage and the many stories they were involved in as they transform themselves to capitalize on brave new trading reality. As usual, there’s a healthy dose of investor chatter from Twitter and the forums as well as a new feature of the weekly roundup – a look ahead at articles coming to the SparxTrading.com blog.

Deal Dance

There’s a classic saying for investors trying to time the markets: buy when it snows and sell when it goes. Of course, depending on where you may be in the country the timing of that ‘advice’ can vary widely.

For DIY investors, however, history has shown that when it comes to deals & promotions, snow might be a decent indicator of when to go shopping for a bargain for opening an online trading account.

Yet again this year, Canadian discount brokerages have stepped back from offering up promotions now that the RRSP season is behind us. Dropping from a high of 35 offers last month to 24 deals to kick off April, the promotional race has cooled off heading into middle of spring.

With another four deals set to expire through the month of April, the deal cull is not quite finished. That said, the news for DIY investors isn’t all grim. There are already whispers some more offers are coming and the odds are quite good that marketing teams are not about to take the spring or summer off.

The sole online brokerage offering a ‘new’ promotion to start the month is BMO InvestorLine, whose cash back or commission free trade offer is likely to spark the interest of investors and brokerage competitors alike.

Despite this cyclical phenomenon, there are indicators suggesting positive investor sentiment and a few stories that are genuinely exciting to investors (such as the proposed legalization of marijuana and renewed interest in IPOs). So, while the past two or three years have not had a robust set of trader friendly stories heading into the summer season, this year things appear to be ‘different’.

Thus, competitive brokerages may seize upon this opportunity to shift gears on a typically slow season to take advantage of the uptick in investor sentiment.

For DIY investors looking to open an online trading account, there are still lots of deals for those in a hurry to open an account and the prospect of some interesting offers on the horizon for those with a bit more patience. Stay tuned.

Spotlight lands on Interactive Brokers

As many west coast readers can attest to, when it rains it pours. For Interactive Brokers, it has been one of those moments where lots of things are happening all at the same time. In this section, we run through a week filled with analyst downgrades, impressive account growth, news appearances and the launch of a new feature for Canadian investors.

Earlier in the week Interactive Brokers announced that they would be winding down the market making segment of their business – an operation that has struggled to be profitable – in a move that signals just how challenging active traders have found the low volatility environment of the past several years.  The irony, of course, is that as an online brokerage Interactive Brokers’ valuation rests on the fact their clients are active and/or professional traders.

The transition was not taken favourably by analysts, at least for the moment, as the move resulted in downgrades on IBKR. While the stock price faltered momentarily, by week’s end it had made back ground and then some.

One of the reasons the stock chart on IBKR may have recovered so quickly came from the report of their trading metrics.

The image below (from the March 2017 trading results) indicates an increase of new accounts in March compared to February (+2%) and compared to the same point last year, the increase an increase of 18%. The spike in net new accounts from February to March 2017 was more than 61% higher than the percentage of net new accounts from the same period in 2016. Perhaps the SNAP IPO in early March along with an increased interest in the IPO market generally helped to serve as a catalyst; however, the slow and steady march upward in account growth is noteworthy.

Interactive Brokers trading stats March 2017

There was a negative metric picked up on by analysts, namely the decrease in the number of trades (DARTs) that was observed on both a month over month basis as well as on a year over year basis. That said, there was a significantly higher size of order being placed with the number of shares traded 13% higher in March than in February and 63% higher than March 2016.

Big picture: Interactive Brokers continues to shine with active traders, the most lucrative segment for many online brokerages.

One of the reasons that Interactive Brokers earns the accolades from the trading community is that it is both creative and resourceful in the offerings it gives to its clients.

This week, Interactive Brokers Canada announced that its stock yield enhancement program is now available to Canadian investors (officially).  Briefly, the program enables Interactive Brokers to lend out securities of its clients to other investors and, in exchange, the clients lending the securities receive a portion of interest paid on cash collateral put up by the borrower.

There is an extensive FAQ page detailing many of the conditions and requirements associated with the Stock Yield Enhancement Program but a few key takeaways are that individuals with at least $50,000 in account value can participate and that eligible securities can be either Canadian or American (whereas the Stock Yield Enhancement Program was previously restricted to just US securities).

This program is of primary interest to those active investors who wish to short stocks. Specifically, online brokerages that can tap into client securities to lend out facilitate greater availability of those shares.

Several years ago, Questrade tried to gauge interest in a similar program; however, the launch of the program was contingent on approval from Canadian regulators – something that appears to either have stalled or not proceeded.

Regardless, now that Interactive Brokers offers such a program, it will be interesting to see if other online brokerages follow suit (to cater to active traders) or if this becomes yet another reason that active traders will seek out Interactive Brokers as their brokerage of choice.

Finally, Interactive Brokers’ founder and CEO Thomas Peterffy was on CNBC earlier this week providing his take on the latest developments of US retail investors and markets in general. It was particularly interesting to note his position on the markets at these levels but also his take on DIY investor sentiment.

Around the Corner

We’re making some adjustments to how content is delivered on SparxTrading.com and are pleased to announce that we will be including announcements/previews of articles that we’ll be publishing on the blog here in the weekly roundup.

Be sure to check back on the blog (or follow us on Twitter) to get the latest insights on features and developments at Canadian discount brokerages.

In our first ‘around the corner’, be on the lookout for a detailed look at Scotia iTRADE’s launch of their ‘sustainable’ investment assessment tool. This tool has been gathering quite a bit of attention online and has also seen associated media (video) developed to help investors understand what it is and how to use it.

Discount Brokerage Tweets of the Week

An interesting week for DIY investors on Twitter with new features and platform stability on the wishlist. Mentioned were BMO InvestorLine, CIBC Investor’s Edge, Questrade, Scotia iTRADE, TD Direct Investing and Virtual Brokers.

From the Forums

Transferustration

Moving between online brokerages can be a costly affair. In this post one user is considering the move from TD Direct Investing into Questrade and comes up with an interesting (albeit round about) way to deal with the transfer fees.

Transferustration 2: Not so Simple

With robo-advisors gaining in popularity, the shift away from DIY passive investment portfolios into a robo-advisor based platform will only continue to gain traction. This post was particularly interesting as it shows the (rough) experience of one user transferring from Questrade into Wealthsimple.

Into the Close

The first week of April is officially in the books. It’s been a very interesting week across the markets and more importantly across the globe. While the world is nervously watching what happens with the US war machine now being mobilized, traders are inevitably wondering how best to navigate this terrain. And, speaking of things moving quickly, science (or a pipe dream) finds its way into our imaginations yet again this week. Here’s a look into the future of ultra high-speed transportation. Have a great weekend!

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