Shortly after Robinhood became the first U.S. brokerage firm to offer commission free trades to its users six years ago, analysts began predicting that it was only a matter of time before other brokers followed suit by eliminating or lowering some of the commissions they charge.
Robinhood promised $0 trades and high-quality features on its app, in a move that was aimed at making it the future of money.
Since then, other brokerage firms have gone on to reduce or get rid of the commissions they charge in order to attract traders who are looking for a cheap and easy ways to invest their money.
Charles Schwab (NYSE: SCHW) recently announced it will trim its commissions for online trades to $0 in response to the growing competition from Robinhood and other app-based brokerage firms. Hours after Schwab made the announcement, TD Ameritrade (NASDAQ: AMTD) volleyed back, announcing a similar move.
Brokers Offering Commission-Free Trades
So, let’s take a look at all the brokers that are jumping on the commission-free train as customers demand lower expenses.
Charles Schwab
Charles Schwab announced on Oct. 1 that it plans to axe all commission fees for online U.S.-and Canada-listed stocks, option trades, and exchange-traded fund (ETF) trades. However, clients trading options on its platform will still have to pay $0.65 per contract.
The online brokerage said the changes would take effect on Oct. 7 this year. Online trade commissions on U.S. ETFs and stocks at Schwab were originally set at $4.95. As of August, Schwab oversees about $3.72 trillion in client assets and 12.1 million active brokerage accounts.
All clients using its mobile and web platforms automatically qualify for the new pricing, without making a new deposit, maintaining a minimum balance of any type or opening a new account.
TD Ameritrade
TD Ameritrade joined the lineup of brokerage firms lowering commission to zero. The firm said on Oct. 2 that it would end all commission fees for clients trading U.S-and Canada-listed stocks, options, and ETFs. TD Ameritrade said its commissions will move to zero, from $6.95. However, options will still have a $0.65 per contract fee.
“With a $0 price point and a level playing field, we are even more confident in our competitive position, and the value we offer our clients,” TD Ameritrade chief executive Tim Hockey said in prepared remarks.
E*Trade Financial
E*Trade Financial (NASDAQ: ETFC) has not been left out in the race to lower or axe fees for trading stocks. The discount brokerage announced its decision to scrap commissions on the same day as TD Ameritrade.
E*Trade said it would axe fees completely for online US-listed stock, ETF, and option trades, starting from Oct. 7. It had been charging a base commission of $6.95.
The brokerage will also lower the options contract charge to $0.65 per contract for all of its clients. Its active trader pricing of $0.50 per contract will however remain unchanged.
Interactive Brokers
Interactive Brokers is also launching a new product known as IBKR Lite, which it says will offer commission-free, unlimited trades on US-listed stocks and ETFs.
The company made the announcement in September, saying IBKR Lite is designed to meet the needs of traders who are a looking for cost-free and simple way to trade stocks and ETFs.
In addition, IBKR Lite will have free market data, no account minimums, no inactivity fees, among other features. Interactive Brokers is set to launch the new service in October.
TradeStation
Online trading platform TradeStation revealed on Oct. 3 that it will begin offering commission-free trading to clients using its mobile and web channels for exchange-listed stocks, ETFs, and options.
Clients seeking to trade options will continue paying $0.50 per contract without a commission charge. TradeStation said the new service will be known as TSgo.
“By offering commission-free trading to our customers on our web and mobile platforms, we’re breaking down yet another wall to help traders access the markets,” said John Bartleman, President of TradeStation Group.
Vanguard Group
In 2018, Vanguard Group announced that clients on its online platform could trade about 1,800 of its ETFs commission-free, including ETFs from Schwab, SSgA, and BlackRock.
Nearly every ETF on the firm’s platform can now be bought and sold without paying commission.
You Invest by JPMorgan Chase
JPMorgan Chase also launched a zero-fee brokerage platform last year, known as You Invest. The online investing platform offers 100 free stock and EFT trades, with options up to unlimited trades for premium clients.
However, You Invest doesn’t allow investors to trade margin and also doesn’t support call and put options.
Final Thoughts
Slashing commissions for online trading of stocks and ETFs could come at a price for some of brokerages. For instance, Schwab is now likely to record quarterly losses of between $90 million to $100 million following its decision to cut trading commissions from $4.95 to zero, according to CFO Peter Crawford.
TD Ameritrade CFO Steve Boyle says the decision to eliminate commissions is expected to have a revenue impact of roughly $220 to 240 million per quarter on his firm, based on fiscal 2019 June quarter revenue.
Thomas Peterffy, the Chairman and CEO of Interactive Brokers said his company will sell order flow to market makers in order to make up the revenue it will lose after scrapping commissions.
However, the cost to trade online is more likely to continue falling as these brokerage firms engage in a fierce price war that is aimed at capturing the growing sums of money flowing into stocks and ETFs. The industry is now waiting to see whether Fidelity and other brokerage firms will follow suit.