Fidelity, Schwab, TD Ameritrade, E-Trade, and Interactive Brokers Now All With $0 Stock, ETF, and Options Trades

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Update: Fidelity, Schwab, TD Ameritrade, E-Trade, Interactive Brokers, Ally Invest all now offer free stock trades. The new differentiators are things like user interface, customer service, and interest on cash sweep accounts.

Original post:

Schwab just announced the elimination of online commissions for stocks, ETFs and options listed on U.S. or Canadian exchanges as of 10/7/19 (press release). TD Ameritrade responded later the same day by matching that pricing as of 10/3/19. This will affect retail customers and also the many folks who have their portfolio run by financial advisors that use Schwab and TD Ameritrade as custodians. This could also be hard news for the feisty little guys who went there first like Robinhood, Webull, and Firstrade.

Commissions have dropped gradually for a long time, but it was still bringing in hundreds of millions of dollars to these publicly-traded corporations. That said, commissions only made up about 4% of Schwab’s net revenue. TD Ameritrade’s move was more surprising since commissions make up about 16% of their net revenue (they historically have a bigger focus on heavy traders).

I would note that TD Ameritrade and Schwab will likely keep making millions of dollars by accepting payment for order flow. This fact was always brought up with the startups that offered free trades first, but I have yet to see any hard evidence that individual investors are significantly harmed by this practice. The payments work out to about 1/10th of a cent per share traded.

I would worry more about them making money off the interest on your cash sweep. Schwab’s FDIC-insured cash sweep pays a sad 0.12% APY on all balances under $1,000,000 as of 10/1/19. TD Ameritrade’s FDIC-insured cash sweep pays a sad 0.01% APY on all balances under $25,000 as of 10/1/19.

The bigger picture here is the move away from trading and towards portfolio management and financial advice. More and more individual investors are saving in their 401ks and IRAs and such towards a million-dollar portfolio instead of traditional pensions (that were also worth a million or more, you just didn’t notice because it gave you $3,000 a month forever instead). The result is a huge fight over the trillions of dollars up for grabs, and it looks like free trades and low-cost ETF portfolio management are becoming standard equipment.

If everyone joins them at zero, the focus will move from pricing to things like customer service, convenience/user experience, and the cost to “upgrade” to more advanced components of financial advice. I actually look forward to that service-oriented competition more than this pricing war (I don’t trade much anyway). Brokers might also start expanding into new areas to replace those old stock trade profits.

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Comments

  1. This is great news for everyone. Don’t forget InteractiveBrokers announced it prior to Schwab and TDAmeritrade. I hope Fidelity and Vanguard follows as well.

  2. Thanks for listing how much trading costs were part of TD Ameritrades profits (16%).

    That certainly does not explain fully the huge price drop (over 1/3) in AMTD’s stock price over the past couple of days!

    I think my first free TD Ameritrade purchase tomorrow will be AMTD stock!

  3. As a DIY investor this announcement doesn’t affect me much but for the industry as a whole, I think there will be long time benefits. Expense ratios should stay low or go lower and as Jonathan said, service may become the differentiator.

  4. You get what you pay for and in the long run this race to the bottom will have consequences that will serve no one’s interest….least of all the people applauding the move right now

  5. In some reading I was doing about this sudden urge for the online brokers to race to the bottom (i.e. $0.00) for trade prices…some commentators were saying that these companies will somehow try to make their money back in the near future by rolling out some sort of subscription based plan to maintain free trades.

    AMTD was down again today another 3%….it’s looking really attractive now…and they pay a dividend!

  6. Original ‘feisty little guy’ Zecco got wiped out a long time ago and got bought out by King.

  7. Looks like E-Trade followed suit today. Wouldn’t mind seeing Wells Fargo also offer free trades, although I already get 100 free trades a year from them. Having no restriction would be better.

    • I just have to ask…why would you ever Bank/Trade with Wells Fargo?
      If you’re getting 100 free trades a year…I would have to guess that you have some sore of major relationship with them. Why??

      After hearing what Wells Fargo did to customers over the past few years…I will only take their money when they offer special incentives (ex. $250 to open a checking account for 3 months), etc…

    • Added links to E-Trade and Interactive Brokers. Now four publicly-traded big brokers with zero trade commissions. Waiting on Fidelity! That would be big news too.

  8. That’s a good question. I originally started with Bank of America as my primary bank, and also with Citi for my credit card. Both treated me well initially and I used them for years, however Bank of America started charging me fees for various items, so I went to Wells where I had no fees. Citi increased by interest rate for my credit card, even though I was never delinquent, and always paid my card on time. Again, I ended up moving to Wells. At the time, Wells had a promotion where I had free banking, and if I setup a PMA, I would get 100 free trades a year. I then consolidated my IRA and Brokerage at Wells. Wells Trade has changed much over the years, and most of my complaints have been addressed. They’ve improved their mobile platform. Transferring money from checking to brokerage is now almost instantaneous. I received a consolidated statement of all my accounts (which I like very much!). The tools for the brokerage aren’t the greatest, but I use tools outside of the account. Wells gives me rewards for my credit card.

    Now there were those years where they wanted to sign you up for accounts, but for the record, I always initiated any account I setup with them, and I never setup an account for any service I did not want (ie insurance, et al).

    I’m perfectly happy with Wells. Personally, I believe they have the best ATM. They pretty much offer everything I need in a bank. They watch my account and warn me of odd behavior. I get personalized cards that I can design myself– not a big deal, but a nice touch.

    I do wish their interest rate was higher, but that’s true of most non-internet only banks.

    Incidentally the 100 free trades a year is no longer offered on new accounts, but accounts have have are grandfathered in, and I’m unclear if it’ll ever end, but it resets to 100 free trades every year, so I’ve never paid for any trade I’ve executed. It was one of the nice perks that kept me there.

    • Thanks for the response…

      Perfectly understandable from your perspective as to why you would stay with Wells Fargo.

      Banks make SO much money playing with other peoples money….I learned a long time ago to not let them make money off of me (or at least limit how much).

      As to these brokerages and the changes to their fees…I have always invested (and researched) myself using an online broker. This only will help me in the future….even allow me to play with smaller amounts when I see something interesting (I.e. invest $500 here or there on a particular stock I feel is worthy…but not to risk it all).

      I was reading today how some of the brokers are coming out and saying that these $0 trades will only allow people to make poor choices with their money and that they should still use a broker – Really – Give me a break – Brokers are now acting like a certain brand of politician – who believe that they know what’s best for me and would like more control over an individuals life! Not!

  9. I’m currently with Firstrade because I liked their features and UI better than RH.

    I’m considering moving to Schwab, but am more interested in IBKR Lite if it is compatible with my stock research app’s in-app trading interface.

    But if Fidelity goes commission-free, I’d consider moving there as they have the Fidelity credit card with 2% cash back

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