Online Trading Erupts in 1998

Online brokers saw their business skyrocket in the fourth quarter of 1998, amassing record amounts of accounts, assets, and trades. The online brokerage industry as a whole accumulated 3.6 million accounts in 1998 to conclude the year with 7.3 million accounts, according to a report by Piper Jaffray Inc. These accounts represent $420 billion in assets, the report said.

Online brokers logged 336.7 thousand average daily trades in the fourth quarter of 1998, up 32 percent over the third quarter and 125 percent over the previous year. An estimated 27 percent of individual investor trades were conducted online.

“Without a doubt, in 1998 individual investors discovered and realized the power of trading online,” said Stephen Franco, senior research analyst of electronic commerce at Piper Jaffray. “Looking ahead, the successful online brokerages will attract laggard accounts and assets by empowering investing online, as we look forward to new advances in online asset management beyond the resurgent equity trade.”

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Excluding mutual funds, online trading generated an estimated 37 percent of all individual investor equity trades during 1998, and 40 percent during the second half of the year, the report found.

Due to multiple accounts by some investors, the Piper Jaffray report estimates that the 7.3 million accounts represent approximately 4.4 million individual investors.

As for the brokerages, the report found online upstarts Datek and E*Trade both made sizeable gains in market share in the fourth quarter of 1998 at the expense of Schwab and Fidelity, which both lost ground. Waterhouse Securities climbed to the No. 2 spot in market share in the latest report.