Noruma Holdings scaled back its trading business due to years of low trading volume and falling commissions. The news is telling investors what we already know: individual traders are participating less often than in the past. A greater percentage of trading volume is now coming from high-frequency trading (“HFT”). Motley Fool explained what HFT means for stock markets, but Knight Capital Group’s (KCG) should demonstrate how dangerous it is.
More recently, New York times reported that computer-driven trading may account for upward of half of all transactions on the stock markets.
The more trades that are mande, the more fees are collected by the banks and brokerages that officiate the transactions. Lower trading volume is therefore a bit worrying for revenue streams. Still, trading volume is a lower percentage of overall revenue than investment brokerage stocks. This means big banks move higher if investors anticipate a rise in banking activity such as lending or mortgages.
So which companies in the financial industry should investors look at to follow the trend? We list our picks below.
Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:
Companies that benefit from increased lending or mortgage activity include:
1. Bank of America (BAC, Earnings, Analysts, Financials): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments primarily in the United States and internationally. Market cap at $92.47B, most recent closing price at $8.58. Shares rallied 10% in recent trading sessions, helped by a rally in European banks.
2. Citigroup, Inc. (C, Earnings, Analysts, Financials): Provides consumers, corporations, governments, and institutions with a range of financial products and services. Market cap at $93.34B, most recent closing price at $31.83.
3. Morgan Stanley (MS, Earnings, Analysts, Financials): Provides various financial products and services to corporations, governments, financial institutions, and individuals worldwide. Market cap at $32.92B, most recent closing price at $16.61. Shares rallied nearly $2 to $17 in recent trading sessions, also helped by a rally in European banks.
4. JPMorgan Chase and Co (JPM, Earnings, Analysts, Financials): Provides various financial services worldwide. Market cap at $147.24B, most recent closing price at $38.76.
5. Goldman Sachs Group (GS, Earnings, Analysts, Financials): Provides investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Market cap at $54.98B, most recent closing price at $114.68.
6. American International Group, Inc. (AIG, Earnings, Analysts, Financials): The company operates property and casualty insurance networks worldwide and conducts activities in the U.S. life insurance and retirement services industry. Market cap at $57.56B, most recent closing price at $33.30.
Companies that benefit from increased trading activity include:
7. E*Trade Financial Corporation (ETFC, Earnings, Analysts, Financials): Provides online brokerage and related products and services primarily to individual retail investors in the United States. Market cap at $2.5B, most recent closing price at $8.75. E*Trade is searching for a new CEO, after it ousted CEO Stephen Freiberg four weeks ago. The company has been working to reduce its home mortgage portfolio over the last several quarters.
8. TD Ameritrade Holding Corporation (AMTD, Earnings, Analysts, Financials): Provides securities brokerage services and technology-based financial services to retail investors, traders, and independent registered investment advisors (RIA) in the United States. Market cap at $9.43B, most recent closing price at $17.25.
9. Charles Schwab Corporation (SCHW, Earnings, Analysts, Financials): Provides securities brokerage, banking, and related financial services to individuals and institutional clients. Market cap at $17.74B, most recent closing price at $13.92. Schwab reported its DARTs (Daily Average Revenue Trades) dropped 9% in July 2012.
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Dig Deeper: Access Company Snapshots, Charts, Filings
- Bank of America (BAC, Chart, Download SEC Filings)
- Citigroup, Inc. (C, Chart, Download SEC Filings)
- Morgan Stanley (MS, Chart, Download SEC Filings)
- JPMorgan Chase and Co (JPM, Chart, Download SEC Filings)
- Goldman Sachs Group (GS, Chart, Download SEC Filings)
- American International Group, Inc. (AIG, Chart, Download SEC Filings)
- E*Trade Financial Corporation (ETFC, Chart, Download SEC Filings)
- TD Ameritrade Holding Corporation (AMTD, Chart, Download SEC Filings)
- Charles Schwab Corporation (SCHW, Chart, Download SEC Filings)
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That most volume is short term speculators is a good thing in a healthy market. Most of the volume in currencies and commodity futures is also short term in nature. It's what allows the real money (like individuals) to get a liquid market at all times.
DISCLOSURE: I own Citigroup (C), Morgan Stanley (MS). I bought AIG in today's secondary offering. I may buy more AIG this week. I am short puts on Knight (KCG).
David Neubert is CoFounder and shareholder of Kapitall, Inc., the sole owner of Kapitall Generation, LLC (“KapGen”), an SEC registered broker-dealer and FINRA member. Mr. Neubert is not an associated person of KapGen or any other broker-dealer and, other than his indirect relationship described above, he has no control or affiliation with KapGen.