Schwab Announces Zero Commission Stock Trades--E*Trade and TD Ameritrade Tanking

[Qs Laptop]

Charles Schwab is ending commissions on stock trading and the brokerage shares are tanking.


* Starting on October 7, Charles Schwab will be slashing its online trading commissions for U.S. stocks, ETFs and options from the previous $4.95 to zero.

* Shares of Schwab fell 7% in response to the move. Competitor TD Ameritrade lost 20%, its worst day since 2006.

* Stock trades previously cost $4.95 on the Schwab platform.

Charles Schwab said on Tuesday that it is ending commissions for online trading in U.S. stocks, exchange-traded funds and options, the culmination of a years-long fee battle in the brokerage industry.

Shares of Schwab fell nearly 8% on fears the change will hit margins. The broker said commissions fees make up 3% to 4% of net revenue each quarter. Rival brokerage firm TD Ameritrade plummeted more than 20% for its worst day in 13 years. E-Trade shares cratered more than 18%, on pace for its worst day since 2009.

https://www.cnbc.com/2019/10/01/cha...ssions-for-trading-in-us-stocks-and-etfs.html

 

[target2019]

My free trades are worthless now!

 

[Freedom56]

This is actually a good move. They will grab those remaining clients from full commission brokers and other discount brokers. AUM should go up in the long run.

 

[gwraigty]

I remember that within hours of Fidelity lowering commissions to $4.95, Schwab matched it. I wonder if Fidelity will match this.

 

[UnrealizedPotential]

It just gets better and better with Schwab. I do wonder though how long Schwab will be able to maintain the no cost trading structure. I also wonder how Fidelity and E trade will react. Maybe Fidelity will take a wait and see approach or maybe they match Schwab. It will be interesting to see what happens.

 

[Qs Laptop]

TD Ameritrade, AMTD, is down 25%.
E*Trade, ETFC, is down 16%.

 

[Qs Laptop]

Anybody think AMTD is a buying opportunity?

 

[target2019]

SCHW is down 10% for comparison. I'd think about this overnight. Schwab can recover from this, but Ameritrade may have much more difficult time. From what I read...

 

[NW-Bound]

Surprisingly, Schwab said that trade commissions only made up 7% of its revenue.

I have not made many trades on my Schwab accounts in recent years, preferring to use the free trades on my Merrill Edge accounts. I may move more money back to Schwab, as I like their service better.

 

[ESRwannabe]

I'm very happy with this. I recently started a Charles Schwab account in anticipation of needing it if I decide to retire early and do some expat slow traveling to lover my living expenses.

Schwab debit cards dont have any transactions fees, including international. My research on expating is a lot of FIRE expats use Schwab for this feature.

I'm torn weather I should move everything to Schwab or keep some assets at Vanguard just to spread things out. I have a bank account with Schwab. So I can automatically send my dividends and capital gains to Schwab checking that way from my Vanguard mutual funds.

 

[kaneohe]

Where do they make their money from? no wonder they
don't have an automatic sweep that pays a decent rate...

https://www.wallstreetphysician.com...money-offering-low-expense-ratio-index-funds/

Revenue Source at Schwab
Amount ...............(millions)...... Percentage
Net Interest Income.. 4,282...... 50%
Mutual fund and ETF
service fees...... 2,045...... 24%
Advice Solutions....... 1043. 12%
Commissions...... 600... 7%
Other............... 648.... 7%

"In plain English, they take customer deposits (most often cash) and invest it. Essentially, they are using the uninvested cash sitting in your account earning minimal interest and investing it at a higher interest rate to make money."

 

[GrayHare]

There's all sorts of alternate investing brokerages can do with your money. Your account statement might say your invested in a certain stock, but that's only on paper.

Given they're already shaky, ETFC is probably the biggest loser here.

 

[bada bing]

Schwab has been my favorite brokerage for 20 years. Cutting trade
commissions will have next to no effect on my opinion, or might even be a
negative if there are adjustments in services to defray the lost revenue. Last
calendar year I paid 3 trade commissions- ~$15, 3 trades of VXUS. Schwab
already had a useful list of free trade ETFs and funds.

Next market recession is going to see some consolidation among brokerages.
Buyouts or shotgun weddings. Schwab is positioning itself to be one of
the survivors, or at least an attractive takeover.

 

[Coolius]

TD Ameritrade has announced it will also reduce commissions to zero starting Thursday.



Options will be charged at $0.65 per contract, same as Schwab. Option assignments and exercises will be zero commissions as well.



E*Trade will now be in a very difficult position if it does not follow suit.

 

[triangle]

Is the zero commission for only market orders? While computerized trades should cost very little, there is still some cost involved that must be covered.

 

[upset264]

It's about time for negative commissions. I trade, you pay me. I can buy negative yielding bonds and get paid to do it!!

 

[foxfirev5]

Since I rarely pay commissions I'm sticking with Fido and VG. As pointed out above they're going to make money off you one way or another.

 

[Andre1969]

I'm with TD Ameritrade, and when I logged in to my online brokerage this morning, I saw the following blurb...

"$0 commissions coming soon
Starting Thursday: $0 commissions on online stock, ETF, and options trades. Enjoy cutting-edge technology and award-winning investor education and service teams, with commission-free trading. Details

*Applies to exchange-listed U.S. stock, domestic and Canadian ETF, and options trades. $.65 per options contract fee applies, with no exercise or assignment fees. #1 Overall Broker, #1 in Education, and #1 in Customer Service in the StockBrokers.com 2019 Online Broker Review."

So, it looks like they're joining the party.

 

[marko]

There's all sorts of alternate investing brokerages can do with your money. Your account statement might say your invested in a certain stock, but that's only on paper.

Are you saying that brokerage houses do not physically buy a stock for you but take the money and invest it elsewhere? Your 'stock holding' is essentially an IOU? Is this true?

Is this so everywhere? Vanguard, Fidelity, TRowe? Just stocks or MFs as well?

Is this how it really works? Shouldn't there be a piece of paper somewhere that says I own X shares of XYZ so that if the brokerage fails, I still own that stock?

 

[gwraigty]

Are you saying that brokerage houses do not physically buy a stock for you but take the money and invest it elsewhere? Your 'stock holding' is essentially an IOU? Is this true?

Is this so everywhere? Vanguard, Fidelity, TRowe? Just stocks or MFs as well?

Is this how it really works? Shouldn't there be a piece of paper somewhere that says I own X shares of XYZ so that if the brokerage fails, I still own that stock?

That would be your brokerage statement. This link may be helpful:

https://www.finra.org/investors/alerts/if-brokerage-firm-closes-its-doors

In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm. Multiple layers of protection safeguard investor assets. For example, registered brokerage firms must keep their customers' securities and cash segregated from their own so that, even if a firm fails, its customers' assets will be safe. Brokerage firms are also required to meet minimum net capital requirements to reduce the likelihood of insolvency, and to be members of the Securities Investor Protection Corp (SIPC), which protects customer securities accounts up to $500,000. SIPC protection comes into play in those rare cases of firm failure where customer assets are missing because of theft or fraud.

 

[Chuckanut]

IIRC, the big danger if your brokerage house fails is not the loss of you assets but you lack of access to them if you want to trade.

If the brokerage fails and the day after you realize that your stock in MiniMotors Inc. will soon fall out of bed, you may not be able to trade it until the mess at the brokerage is cleared up. Meanwhile, MiniMotors is going down, Down and DOWN every day.

 

[OldShooter]

It has been a long, long time since I worried about commissions as they have comet to be a tiny fraction of our total trade values and our trades are very infrequent.

But now I am starting to worry a little bit about both trading fees and fund expenses. The brokerage houses are slitting each others' throats on both.

What will be the result? It can only be that they will make their money in other ways, probably less visible and probably affecting more of us buy/hold/passive investors.

This story is a long ways from being over.

 

[tulak]

So much for Robinhood...

Does anybody know how well Schwab’s mobile app works for trading?

That was another thing that impressed me with Robinhood. Their mobile app is well designed. It’s easy to use for researching and initiating trades.

 

[PatrickA5]

It has been a long, long time since I worried about commissions as they have comet to be a tiny fraction of our total trade values and our trades are very infrequent.

But now I am starting to worry a little bit about both trading fees and fund expenses. The brokerage houses are slitting each others' throats on both.

What will be the result? It can only be that they will make their money in other ways, probably less visible and probably affecting more of us buy/hold/passive investors.

This story is a long ways from being over.

I have some of the same concerns. I haven't paid a commission in years since I don't trade stocks, so this news doesn't affect me.

Brokerages will either have to make the money some other way - or reduce expenses. Hopefully, customer service won't get any worse - but it could.

 

[GrayHare]

Are you saying that brokerage houses do not physically buy a stock for you but take the money and invest it elsewhere? Your 'stock holding' is essentially an IOU? Is this true?

Is this so everywhere? Vanguard, Fidelity, TRowe? Just stocks or MFs as well?

Is this how it really works? Shouldn't there be a piece of paper somewhere that says I own X shares of XYZ so that if the brokerage fails, I still own that stock?

You still "own" the stock, on paper, but the brokerage has done all sorts of arbitrage with it. After all they don't offer you $500 $1000 $2000 to move your account to them, and then give you $0 commission trades, just to be nice. Big bucks are being made with your wealth. This has all worked for decades, but someday the music will stop.