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Personal Finance > Investing
Online trading plummets
May 23, 2000: 6:31 p.m. ET

Net-stock volume 'fell off a cliff' in May after peaking during the April crash
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - If you're an investor who was tempted to try your hand at trading while Nasdaq ran up, chances are you've had it burned off. Proof positive comes in the fact that trading volumes "fell off a cliff" in Internet stocks in late April and May, according to a report released Monday by Jim Marks, online-brokerage analysts at CS First Boston.

Online brokerages are suffering as a result, Marks noted, and will likely report declining transaction volumes for the second quarter.

"It's not only the day traders," Marks said. Many kinds of investors are cutting back their trading, faced with sharp declines in many of the most-popular stocks for online-brokerage customers.

Online brokers set to take a hit


Trading volumes rise across the board, with many types of investors, when the market is rising rapidly. Of course, that happened last year and in the first quarter of 2000.

graphicMarks also started tracking trading in 35 or 40 Internet stocks three years ago. He now follows overall volume for around 400 of them, and he thinks they give a good idea of where online-trading volumes are going.

"The online trader has a much greater fascination with these stocks" than a conventional investor, Marks said. Trading volume in those Internet stocks is down more than one-third, 34 percent, through May 19, according to his numbers, compared with April.

What's more, since the week ended April 21, overall weekly trading volumes for Internet stocks have shrunk 38 percent on average, according to Marks. He is projecting that online brokers will see their transactions drop between 10 percent and 20 percent for the second quarter as a result.

Spike comes before the fall


"It's not a secret that volumes are down," said Linda Finnerty, director of communications for DLJ Direct (DIR: Research, Estimates), a prominent online brokerage. The question is how much. "I can't confirm the numbers, but obviously volumes are down," she said.

Online traders are more-active traders than normal, sometimes even hurting their returns in the process. Their more-rapid trading suggests they're the most likely to have cut back on their trading.

graphicWhen a crash sets in, as it did with tech stocks in mid-March, it's not surprising that investors lose their appetite. "People retreat to the sidelines, licking their wounds. The whole process is not as attractive anymore," Marks said.

First, though, there is in fact a spike in trading while the crash is going on, Marks pointed out. That did indeed come toward the end of April, Marks' numbers show.

Online brokerage stocks overpriced?


Now the trading storm has passed. Only 269.8 million shares of Internet stocks changed hands each day for the week ended May 19, CS First Boston calculates. That is down 38 percent from the high of 437.6 million shares that changed hands every day for the week ended April 20.

Of course, the volume in the market overall is light, too. For Nasdaq, 1.23 billion shares changed hands every day the week ended May 19. That's down 35 percent from the week ended April 20, when 1.89 billion Nasdaq shares changed hands every day.

It isn't clear to Marks that online-brokerage stocks are overpriced, however. The first-quarter volume was double what it was a year ago, and that rate of growth was probably not sustainable.

What's more, the online brokerage stocks did not increase rapidly while many other Internet-related issues raced away, Marks said. The fear was that large traditional brokers such as Merrill Lynch and American Express would steal a lot of market share from the insurgent online brokers.

But some large online brokers, such as E*Trade (EGRP: Research, Estimates) and Ameritrade (AMTD: Research, Estimates), are still seeing new-account growth of up to 40 percent, Marks pointed out. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.