David George-Cosh

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Canadian online brokerages are seeing a windfall of new business amid an influx of new investors and a surge in trading activity during the COVID-19 pandemic.

Independent brokerages such as Questrade and Wealthsimple as well as services offered by major Canadian banks have seen sharp spikes in customers joining their platforms, with one industry official saying half a million new accounts were created in the first quarter of the year. Meanwhile, active day traders and even some long-term investors are placing more bets on the market, with daily trading volume jumping to as much as three times normal activity, some executives say.

"People recognize that they need to manage their money remotely, and so I think that's pulled a lot of that growth forward and this COVID situation has given them the time and the motivation to do it," said Stephen Graham, chief operating officer at Questrade Inc., in a phone interview. The online brokerage added 50,000 new accounts in the first quarter of the year, nearly triple the amount from a year earlier, Graham said.

The surge in investor interest in equities comes as the novel coronavirus has caused unprecedented moves in global stock markets. While investors broadly sold riskier assets in early March, some markets have nearly bounced back thanks to emergency interventions from central banks as well as some early signs that the worst of the COVID-19 pandemic may be over.

Those conditions, along with a cohort of people suddenly stuck at home under quarantine-like conditions with scant live entertainment options available, created an environment where trading stocks has emerged as a popular pastime while waiting for the pandemic to be over. Robinhood, the popular U.S. trading app, said it added more than 3 million accounts in the first four months of the year, leading some portfolio managers to attribute the recent stock market rally to all those new retail investors.

"There's millions of people getting more money from the government on those [relief] programs for months and those programs will end [next month]," said Jean-Francois Tardif, founder and portfolio manager at Timelo Investment Management, in an interview with BNN Bloomberg.

"Those people aren't working and they've got a lot of time to trade. This is becoming a new hobby for a lot of people.”

According to Investor Economics, a Toronto-based financial services research firm, 500,000 accounts were created across the entire Canadian online brokerage industry in the first quarter of this year.

That's a figure that usually takes three full quarters to achieve, Graham noted. The second quarter is on track to have a similar rate of new account growth, he added.

Paul Clark, president of TD Bank's Direct Investing service, said it's not the first time he's seen trading activity spike. The last time investor interest in the market reached this level of activity was in 2018 when cannabis stocks peaked during the early days of legalization, he noted.

While TD typically handles about 100,000 to 120,000 trades on its platform each day, Clark said that activity has at least doubled, and in some cases moved by four times what a normal trading day looks like.

"It's just consistent outperformance day in and day out as we move into the summer months," Clark said. "It's a very different pattern than anything we've ever seen before."

Even more atypical is that the increase in trading volumes isn't isolated to a certain type of investor. Active day traders are even busier trying to catch the next big score, long-term investors are dipping into the market trying to spot cheap stocks to add to their portfolio, and roughly half of the new users joining the platform are Millennials who have caught the investing bug, Clark said.

Other Canadian banks have seen similar rates of growth in their online brokerage business. Bank of Montreal's InvestorLine service has seen trading volume roughly double in the last three months compared to a year earlier, a bank spokesperson told BNN Bloomberg in an email. Royal Bank of Canada's Direct Investing service doesn't disclose metrics, but it has seen "unprecedented growth in new clients in the past quarter," according to an emailed statement from RBC Direct Investing president John Bai.

Ben Reeves, chief investment officer at Wealthsimple Inc., an online investment management service, said day trading activity is picking up despite the vast majority of the company's clients identifying themselves as long-term investors.

The company's Wealthsimple Trade platform now counts 170,000 users and has more than doubled the number of clients on its platform over the past three months while tripling the average daily number of trades, a spokesperson told BNN Bloomberg in an email.

"We consider it play money and that seems how our clients are using it," Reeves said in a phone interview.