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As part of the deal, E-Trade will also purchase Tradescape's software, online trading technologies and brokerage firms. E-Trade said that the deal will increase the number of transactions on its site from 100,000 to more than 200,000 per day.
Earlier this week, rival online brokerage Ameritrade Holding said it will acquire Datek Online Holdings for $1.3bn in stock.
The moves are part of ongoing consolidation in the online brokerage industry in these tough economic times, Larry Tabb, an analyst at TowerGroup, said.
"The online trading firms are having difficulty existing in this market," Tabb said. "So they either have to expand [their customer base] or contract their competitors. There is just too much capacity."
Ameritrade said its acquisition of Datek would push its number of daily trades to 164,000 from its current average daily volume of 86,000 trades.
The E-Trade agreement also calls for E-Trade to pay Tradescape another $180m in stock if Tradescape meets or beats certain earnings targets and revenue goals for the rest of 2002 and all of 2003.