Obviously, TradeStation is geared for the pro, such as hedge fund managers, institutions, exchange members -- and day traders. However, since TradeStation relies mostly on technical analysis, the appeal is really to day traders.
Yesterday, the company announced its quarterly results. Third-quarter revenues came in at $17.2 million, which was a 7% increase from the same period a year ago. Net income was $2.9 million, which was a decline from last year's $3.5 million.
A big part of the reduction in profits was TradeStation's investment in becoming a self-clearing brokerage firm. This makes it more convenient for TradeStation's customers to execute their trading strategies. It should also lead to annual cost savings of $4 million.
Early this year, Bill Mann wrote a profile on TradeStation. His conclusion was that the growth depends on, well, "speculative excess." Basically, it is difficult to sustain a business based on the boom-and-bust cycle of day trading.
It should be no surprise that the average client for TradeStation makes nearly 500 trades per year (half of them in Taser
Many of those same day traders using TradeStation to make their trades might also be contributing to the stock's volatility. Yesterday, the stock dropped nearly 8% to $6.13.
The Fool does not think day trading is investing. But it does advocate using a discount broker for your stock transactions. Why pay more when you don't have to? If you're looking for a broker, visit our Broker Center for advice and deals.
Fool contributor Tom Taulli does not own the stocks mentioned in this article.