Investor Sentiment Towards Trading Firms

With investment banks reporting a lack of client trading volume we wonder if retail investors are being more active than their professional counterparts by looking at investor sentiment towards listed trading firms. When did you last buy or sell shares online? We will look at TradeStation (NASDAQ:TRAD), Interactive Brokers (NASDAQ:IBKR), Charles Schwab (NYSE:SCHW), E*Trade (NASDAQ:ETFC), TD Ameritrade (NASDAQ:AMTD) and IG Index (LON:IGG)

In these austere times one would imagine that online share trading is far down the list of people’s priorities. A counter argument can of course be made, maximizing returns from share trading can supplement smaller bonuses and make up salary shortfalls for those made redundant. From the data, it would appear that some short sellers have been active.

TradeStation (NASDQ:TRAD) recently announced that their “daily average revenue trades” dropped 13% compared to this time last year but rose 4% from September’s figure. The share price of this online trading firm has been trending lower over the past year and the demand to borrow reached a high of 5.5% in July. There has been some short covering to 3.5% of total shares and there could be more given a bid rumor after the owners of bigger rival – Interactive Brokers (IBKR) – announced a 6.2% stake.

The media has reported rumors that Charles Schwab (SCHW) intends to buy E*Trade (ETFC). Short selling is 3% and rising in Schwab and further pessimism is being shown by those institutions that own and lend their shares. They owned 245m shares in Schwab a year ago and now own 220m which is 18% of the total shares. This is below the typical proportion (25%) of an S&P 500 company in the hands of funds who lend.

E*Trade sees 5% of its shares on loan. Institutional investors have recently increased their stake in ETFC from 43m shares to 47m. E*Trade has quite a few corporate bonds in issue paying between 6% and 12.5% interest. We do not see any great demand to short these and nor do we see much institutional selling going on.

Interactive Brokers Group (IBKR) has been a tough stock to trade for short sellers and there has been a scramble to cover after the price recently rose from 17 to 19 USD. Demand to borrow has come down rapidly from over 7% of total shares to 3.5%. TD Ameritrade (AMTD) has short selling at just off a one year high at 3.5% with very little short covering after the recent price rally.

If we cross the pond and take a look at the pre-eminent UK equivalent – IG Index (IGG) we see no such pessimism. In fact we see nothing but positive investor sentiment to this UK spread betting firm. Short selling is continually falling and is now around 2% of all shares while a massive 27% of IG’s shares sit with institutional funds who lend, which is an all time high

For users of the Bloomberg terminal, we have attached a brief User Guide which illustrates how to conduct analysis on one of the stocks featured above. To view, please click here.