What drives trading volumes?
Charles Schwab (SCHW) saw a YoY (year-over-year) rise in trading revenues in the first quarter. The markets were very volatile that quarter, which resulted in higher trading, thus boosting trade revenues.
Moving forward, the markets could see higher volatility, mainly due to prevailing trade tensions that are disrupting the global trade environment. However, in the long term, it could negatively impact investing behaviors of retail investors and adversely affect brokerages (VFH) such as TD Ameritrade Holding (AMTD), E*TRADE Financial (ETFC), Interactive Brokers Group (IBKR), and Charles Schwab. So if trade wars keep escalating, the impact could be felt in the brokerage industry and other industries.
Charles Schwab’s Q2 2018 trading revenues
The second quarter is expected to be less beneficial sequentially for brokerages in terms of trading income, primarily due to less volatility. Corporate earnings and lower unemployment were the main factors that helped the markets in the second quarter. Charles Schwab is expected to generate trading income of $173.61 million in the second quarter.
At the end of the second quarter, however, the Trump administration announced restrictions on Chinese investments in US technology companies, which could help brokerages marginally since it could pressure investors to reshuffle their holdings. As a result of this announcement, technology stocks fell.
In the next part of this series, we’ll see what might help Charles Schwab’s asset management and administration fees.