What Digitization Means for the Brokerage Industry



Increasing the use of digitization

In the direct brokerage industry, investors prefer brokers that offer a wide variety of digital means for trading or managing portfolios. These brokerages (VFH) benefit when they leverage these digital capabilities to meet their clients’ requirements, which can also improve the brokerage companies’ client engagement levels.

Trading via smartphone platforms can help market participants react immediately to corporate or macro news. However, the industry faces the risk of global downturns, which could also impact investor sentiment. According to TD Ameritrade (AMTD), equity markets are affected by geopolitical concerns.

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What could investors expect?

For investors who buy stocks on a long-term basis, any pullback could be considered a buying opportunity. However, the markets are expected to witness a sideways trend for the next two to three months.

In a digital environment, electronic brokerages are expected to develop tools that help their clients. J.J. Kinahan, chief market strategist for TD Ameritrade, stated on June 15 that as the United States has levied tariffs on Chinese imports, the focus should be on technology stocks.

In a competitive industry where pricing actions could hamper brokerage companies’ financial positions, these companies could also consider inorganic expansion. E*TRADE Financial Corporation (ETFC) acquired Trust Company of America, which could help improve ETFC’s client service.

Brokerage firms Charles Schwab (SCHW), E*TRADE, TD Ameritrade (AMTD), and Interactive Brokers Group (IBKR) have beta values of ~1.7, ~1.2, ~1.4, and ~1.1, respectively.


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