Daily Average Revenue Trades (DARTs): A Key Brokerage Metric

DART, used in brokerage, measures daily average trades with fees. With the rise of zero-commission trading, brokerages adjusted DART definitions. E*TRADE in 2019 expanded DART to cover all trades generating fees or payments.

Basics

The brokerage industry employs the Daily Average Revenue Trade (DART) metric, which traditionally reflects daily average trades generating commissions or fees. In response to the prevalence of zero commissions in 2019, some brokerages broadened DART's scope to encompass numerous commission-free trades.

DARTs and Performance Metrics

Analysts watch DARTs in the brokerage sector to see how well commissions generate revenue. Commissions are used to bring big profits, especially for discount brokers. DART affects commission profits, helping predict earnings. Higher DART can mean more earnings, lower DART might mean less.

Industries use non-financial metrics to judge performance. Retail tracks same-store sales, showing how old stores do. Sales per square foot measures single-store success. Hotels use RevPAR (revenue per available room) and airlines use revenue per seat/mile with financials. These let experts compare and find trends.

Current Challenges for DART

Reduced commissions pose challenges for using DART to measure success and predict earnings. Higher DART can be misleading if commissions are cut. More brokerages offering commission-free trading also challenge DART. Robinhood started this trend in 2014, prompting major brokerages to cut commissions in late 2019 to stay competitive.

Different Types of DARTs

With zero-commission trades emerging, brokerages adopted varied DART strategies. In 2019, they began using different DART definitions. Always confirm the applicable definition to avoid premature assumptions.

Traditional Metrics

Charles Schwab used the old DART definition until Oct 2019, causing a major drop when commissions were cut. Traditional DART may decline to zero for most brokerages, losing its comparison value. Keeping it is based on trades losing revenue importance; brokerages shifting to fees and services. DARTs might then become a historical metric with limited practical use.

Expanded Metrics

In 2019, E*TRADE broadened its DART definition to encompass all trades generating payment for order flow, commissions, or fees, including zero-commission stock trades, ETF transactions, and relevant no-transaction fee mutual fund trades. The value of this expansion hinges on the role of payment for order flow, as higher DARTs directly correlate with increased revenue, considering brokerages' ongoing profit from this practice. The success of this extended DART concept is contingent on how much payment for order flow contributes to overall profits, considering the potential for lower profitability compared to commissions, alongside declining revenues from traditional sources like annual fees.

Conclusion

DART is a key metric in the brokerage industry that tracks daily trades generating commissions or fees. Zero-commission trading has expanded DART's scope to encompass numerous commission-free trades. Analysts use DART to predict earnings and compare performance between brokerages. Reduced commissions present a challenge for using DART to measure success and predict earnings. DART strategies vary between brokerages, so it's important to confirm the applicable definition to avoid premature assumptions.