#306
Race To Zero

Published:

Oct 05, 2019


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Published:

Oct 05, 2019


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Schwab, E*Trade, and TDAmeritrade have joined the increasing ranks of discount brokerages that have cut trading commissions altogether. For E*Trade, the maneuver will immediately eradicate $300m in annualized revenues.

Since Interactive Brokers made the move in late September, all of these companies' stocks have taken a beating. TDAmeritrade is down by roughly 33%, while E*Trade and Schwab are down by 20% and 13% respectively.

This trend has been a long time coming - gradually at first, and now all at once. Robinhood got the ball rolling several years ago, but since last year incumbents such as Vanguard, JP Morgan, and Fidelity have eliminated fees and commissions across a broad range of products. Schwab, the market leader, accelerated panic this week for the investors in all of these competitors.

How will these brokerages try to make up for the lost revenue? First, we remind readers that free trading isn't really free - with the brokers paid for order flow on the back-end. In addition, these companies are re-orienting towards advice (and AUM fees) - with offerings that range from simple robo advisors to human financial advisors.

While investors in Schwab, TD, and others might be feeling some pain right now, traders everywhere are thumping their chests!

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