As a pricing war continues in the online brokerage space, smaller competitors, once rumored to be the next casualties of consolidation, continue to thrive and analysts say they could gather share as larger players focus on salvaging other businesses.

TradeKing, a Boca Raton, Fla., online brokerage company, established itself five years ago by offering trades for $4.95. Though in recent months both Fidelity Investments and Charles Schwab [SCHW] have slashed commissions, TradeKing’s prices remain significantly lower and its pricing structure has enabled the company to grow.

TradeKing, which had $1.5 billion of assets under management, increased its total accounts 51% last year to 190,000 as of Dec. 31. Difficult financial conditions had caused total accounts to dip from record highs of 200,000 accounts and $2 billion of assets under management just prior to the financial meltdown in 2008, but Don Montanaro, the company’s chairman and chief executive officer, said he expects more growth this year.

“As we get bigger, it gets harder and hard to beat our percentage growth,” he said. “We had 100% growth in our first year and that percentage drops as we grow our base of assets. We know that base is going to rise and fall with the markets and we clawed back last year.”

He added, “There are a wave of new clients that are moving to self-directed investing,” he said. “They are the refugees from the full-service brokerage model. I think consumers are tired of giving the keys to their financial future to someone else.”

TradeKing and other small discount brokerage companies, like Zecco Holdings Inc., were able to establish themselves with lower commissions. Zecco offers 10 free stock trades a month and $4.50 for subsequent trades. Analysts said that this kind of pricing structure forced larger companies to cut prices. Bill Doyle, an analyst at Forrester Research, said he thinks online trading commissions will continue to decline.

“They’ve been falling since 1998 when Schwab cut the cost of online trades from $60 to $30 in an aggressive move online,” he said. “A handful of minor players now offer free trades. But for the big firms, ‘free trades’ will only be part of relationship pricing, offered to customers who, for example, have significant assets at the firm.”

In January, Schwab announced plans to reduce its online-trading commissions by 31% to $8.95. Montanero said he “applauded” Schwab’s decisions. He said Schwab’s old-pricing model, which allowed customers with larger account balances to trade at a discount, was antiquated.

“There are a few players left with tiered pricing, but it is really a dated practice,” he said. “It is hard to believe that anyone can get away with that. I think that it hurts the entire sector when there is confusion and hidden fees.”

Larry Freed, the chief executive officer of ForeSee, which produces an annual consumer survey on online brokerage companies, said that "price is usually not the number one driver" for customers.

"Everyone wants a cheaper price," he said. "But historically, it hasn't driven people away from or towards a certain provider."

Freed said that difficult economic conditions have forced consumers to consider pricing, and in turn forced providers to lower their prices, but long-term it may be difficult for companies like Schwab and Fidelity to be profitable with these lower prices.

"Some companies can differentiate themselves on price, but for the most part, that is a difficult path to go down," he said. "Price is going to remain an important point until the economy starts to growth again. People are less apt to worry about trading commissions when they are gaining money on a trade than when they are losing money."

Montanero agreed that companies, including TradeKing, cannot just compete on price. “I think it is just another thing on the list when you go shopping for an online broker,” he said. “I mean, whether it is stocks or blueberries, you want to get the best price. But you aren’t going to buy blueberries that are mushy just because they are the cheapest.”

TradeKing plans to spend much of this improving its service model and its education platform. Last month, it introduced a “trading dashboard” that integrates a client’s trading activities with the social media functionality of TradeKing’s trader network community.  This enables customers to seamlessly make trades based on the recommendations of other TradeKing accountholders.

Some analysts said that smaller providers like TradeKing and Zecco could still be acquired by a larger provider. Montanaro said that he expects a “little” more consolidation in the online brokerage world, but nothing transformative – and nothing involving TradeKing.

“I think everyone held their breath for a long time wondering if something was going to happen with E-Trade and, though they still have a way to go in terms of cleaning up their balance sheet, there just isn’t the same chatter anymore about them being acquired,” he said. “That franchise was hobbled by their banking business and that is a tough pill to swallow, but they are hanging on.”

TradeKing has established itself as a “stable player in a rocky business,” Montanaro said.

“We are out here,” he said. “There is not a lot of word about new firms popping up anymore. I think we’ve finally reached the point where this industry has stabilized.”

TradeKing plans to increase its advertising spending this year after cutting its ad budget in 2009, Montanero said. He said he planned to “return to 2008 levels,” but wouldn’t specify how much the company planned to spend.

“We expect to add 50,000 plus accounts this year,” he said. “I’d be disappointed if we don’t meet that goal. We came a long way in 2009, but we have a lot more in the pipeline for 2010.”