By Jed Horowitz
NEW YORK, March 14 (Reuters) - The three biggest U.S. discount brokerage firms said their stock trading volumes jumped in February from a year earlier, an indication that confidence by small investors in the stock market is continuing to gain after being fairly moribund in 2013.
Charles Schwab Corp, the biggest of the three, trailed its competitors in monthly gains, though all three had double-digit increases in February compared with the same month in 2013. San Francisco-based Schwab, however, saw trading by its 9.1 million brokerage account holders fall by 5 percent in February from January, to a daily average of 556,000, it reported on Friday.
That compares with a 1 percent monthly gain from TD Ameritrade Holding's 6.0 million account holders, who averaged 501,000 daily trades in February. It was the first time in TD Ameritrade's history that trades breached the 500,000 level.
E*Trade Financial Corp on Friday said its 3 million brokerage account clients averaged just over 201,000 trades in February, up 2.8 percent from January.
Institutional investors monitor the ups and downs of trading volume by retail investors as a barometer of market confidence - which they can bet against or with, depending on their analysis of small-investor sentiment - as well as of the health of the brokerage firms.
All three firms have signaled that small-investor confidence at the start of 2014 is strong after many sat out 2013, when the Standard & Poor's 500 index gained about 30 percent.
Compared with February 2013, average daily trades by Schwab investors last month gained 10 percent. At TD Ameritrade and E*Trade, February trading volume soared 30 percent and 32 percent, respectively, from a year earlier.
The S&P 500 was up 4 percent in February, bringing its gains for the first two months of the year to 23 percent.
Schwab's chief financial officer, Joe Martinetto, said in a commentary on the firm's website that raw trading data "tell only a fraction of the (customer) engagement story," noting that a growing number of customers are paying Schwab fees for broad advice about achieving their financial goals instead of seeking direction on pure stock and bond trading.
As a general rule, TD Ameritrade and E*Trade clients are more active traders than Schwab, said analysts and a Schwab spokesman.
Schwab disclosed another indicator of growing investor interest in stocks. After a year in which brokerage firms of all types saw rising cash balances in client accounts, Schwab clients poured a net $3.3 billion into stock and bond mutual funds offered by the company while withdrawing $318.4 million from money-market funds, which are nearly equivalent to cash.
For a second straight month, international mutual funds attracted more money from Schwab clients - $2.5 billion in January and February - than any other category. Taxable bond funds were the second biggest gainers, with net inflows of $2.3 billion.
Firms such as Schwab, TD Ameritrade and E*Trade that attract many self-directed investors looking for low commissions began the year stronger than some of their full-service competitors.
Last month the head of Wells Fargo Advisors, the third largest U.S. firm by number of brokers, said clients were keeping near-record amounts of cash in their accounts while the firm was behind budget in trading commissions.