Online brokerages going to $0 trades

[specsaregood]

So schwab is going fee-free on most transactions starting next week, TDAmeritrade announced the same immediately after, followed by E-trade.
What do you all think about that? Is it a race to the bottom? Is it a desperate attempt to get ahold of equity before a market collapse? A need to increase liquidity? An attempt to stifle startups like robinhood? Or just the free market at work?

[oyarde]

Well I would need to know what they are still charging for and how much . Sounds sort of like a way to drum up business for products that are over priced and not appealing ( that includes most stocks ) and once one did it the others had to meet it. So yes a race to the bottom of sorts but different in they have a low overhead business to begin with. It is like a kmart red light special.

[oyarde]

One of the reasons it is hard to truly value junk business ( low overhead service business that is easily replaceable by anyone ) is things like this .

[Superfluous Man]

What's the catch though? They're counting on making their money through something other than per-trade fees.

[oyarde]

Ya have to guess most of the overhead these have is just advertising . I would go with something like no fee to buy and just do a fee on the sell. Just y opinion but they are leaving too much on the table and they will have a difficult time no going back to the same fee .

[specsaregood]

What's the catch though? They're counting on making their money through something other than per-trade fees.

Well Schwab started it this week. From what I read, only like 3% of their revenue was from trades. Most of their revenue is interest on cash balances and private asset management. so one could argue it makes sense for them if it brings in new customers that they can bring into their asset management division.

But TDAmeritrade responded by doing the same, and 30% or so of their revenue were commissions on trades. E-trade as well. that is gonna hurt them.

[oyarde]

Well Schwab started it this week. From what I read, only like 3% of their revenue was from trades. Most of their revenue is interest on cash balances and private asset management. so one could argue it makes sense for them if it brings in new customers that they can bring into their asset management division.

But TDAmeritrade responded by doing the same, and 30% or so of their revenue were commissions on trades. E-trade as well. that is gonna hurt them.

Yes Schwab could easily gain more than the three percent off new cash balances money.

[Brian4Liberty]

So schwab is going fee-free on most transactions starting next week, TDAmeritrade announced the same immediately after, followed by E-trade.
What do you all think about that? Is it a race to the bottom? Is it a desperate attempt to get ahold of equity before a market collapse? A need to increase liquidity? An attempt to stifle startups like robinhood? Or just the free market at work?

The discount brokerages have been on a race to the bottom on transaction fees for a while now. Many mutual funds and ETFs have had no transaction fees for quite a while. Have to imagine it’s a competition issue.

One big benefit is that it makes dollar cost averaging more affordable, so maybe it will spur some more investment, and possibly churn the market more, but not sure what advantage churning would give the brokerage if they don’t charge transaction fees. Might generate more participation.

They will get paid one way or another. Cash balances are one way. Robo-investing is the latest fad, and most of those programs keep a portion in cash. It’s essentially a zero interest loan to the brokerage.

They also want to get as much cash off the sidelines as they can, and get it invested. Pyramid schemes love “growth”.

[Zippyjuan]

Bumping share prices they charge you to try to make up some of the difference.

https://finance.yahoo.com/news/charl...171956388.html

‘No real free lunch’
However, at least a few market watchers contend that Schwab’s — and even Robinhood’s — “free” services don’t exactly translate into a net win for the customer.

While the platform doesn’t charge fees, unless one uses its special services like Robinhood Gold, the cost is actually reflected in the price of the asset being purchased.

For example, if you buy a stock on no-fee Schwab, you place an order. The brokerage sends that buy order — say, for $5 — to a third party. That entity sells you the stock for $5, but the actual cost of it was $4.99. The $0.01 made on that trade is then shared between the third party and the broker.

On top of that, brokers have other ways of making money.

For example, an outside professional trading firm may buy up all the retail-investor orders that come from a broker, be it Robinhood or Fidelity, and executes those trades.

These companies then make money from the gap between the bid and the offer. And depending on whatever they make, the broker then receives payment for the order flow.

“When a company offers something for free... online brokers still make money from you in other ways,” said Investopedia Editor-in-Chief Caleb Silver. “There is no real free lunch.”

[Krugminator2]

An attempt to stifle startups like robinhood? Or just the free market at work?

I haven't formed an opinion on this yet. But the consensus on Robinhood is that the fills are terrible and it is absolute junk.

I suspect that nothing is so expensive as a free brokerage account. The way a broker routes trades has a huge impact and I suspect that selling this data to high frequency trading firms for a "free look" is how these brokers will make their money.

[oyarde]

In muh junk mail today I had an E trade ad for 4.95 and fifty cent .

[Brian4Liberty]

I haven't formed an opinion on this yet. But the consensus on Robinhood is that the fills are terrible and it is absolute junk.

I suspect that nothing is so expensive as a free brokerage account. The way a broker routes trades has a huge impact and I suspect that selling this data to high frequency trading firms for a "free look" is how these brokers will make their money.

Maybe that's why when I put in a sell order at a certain price on a thinly-traded stock it immediately takes a dive way below my sell price...

I've always known that brokerages have an advantage just by knowing how many buys and sells and at what prices are hanging out there.

[Brian4Liberty]

I heard today on one of the business shows that Wall Street is desperate to get Millennials into their Casino. Apparently Millennials aren't terribly trusting of the stock market.

[Krugminator2]

Maybe that's why when I put in a sell order at a certain price on a thinly-traded stock it immediately takes it dive way below my sell price...

I've always known that brokerages have an advantage just by knowing how many buys and sells and at what prices are hanging out there.

A good broker will get you fills at a better than an anticipated price. A bad broker will get you fills at a worse than anticipated price. People focus on the couple of bucks in commissions and customer service and stuff that really doesn't matter but ignore the big stuff like saving 5 or 10 or 20 cents on getting in and out of trades.

Honestly any retail trader who doesn't use Interactive Brokers is lighting money on fire. There is a reason they are the top rated broker every year. https://www.interactivebrokers.com/en/index.php?f=1340

[Zippyjuan]

If you want low cost investing, check into DRIPs- Dividend ReInvestment Plans. I have one with a utility. These are dividend paying stocks which instead of paying out the dividend to you, use that money to purchase more shares (at no cost). When I purchase more shares, there has also been no cost to me (plans may vary by the company). Nice thing about dividends is you get money whether the price of the stock goes up or down.