Race to the Bottom: Brokerage Firms Are Slashing Prices

by on Mar 07, 2017

In an increasingly competitive marketplace, discount brokerages are facing immense pressure to attract clients. The question of cost arises in practically every purchasing decision, and investing is no exception. Recently, we have seen a whirlwind of price cuts from four leading firms: Charles Schwab, E*TRADE, TD Ameritrade and Fidelity.

In the beginning of February, Schwab lowered commissions on online equity/ETF trades to $6.95 from $8.95, a seemingly drastic drop, and promoted its no-minimum index fund expenses in direct comparison to Vanguard and Fidelity. The firm also introduced a new Satisfaction Guarantee, which reimburses transaction fees and commissions of advisory fees to displeased customers. Fast forward to February 28, when Fidelity countered by cutting its base commission rate to $4.95 and reduced option pricing to $0.65 per contract. Just a few hours later, Schwab followed suit, dropping its commissions down another two dollars to match Fidelity. On the same day, TD Ameritrade entered the ring by announcing that, effective March 7, it will reduce its online equity trades from $9.99 to $6.95 and lower options pricing to $6.95 plus $0.75 per contract. E*TRADE is the latest firm to hop on the bandwagon, as on March 2, it announced that it will reduce trade commissions to $6.95 from $9.99, effective March 13. The firm also announced a new active trading program, implementing $4.95 trades and $.50 per options contract for clients who execute at least 30 trades per quarter. With such drastic cuts, and in such an abrupt fashion, one has to wonder, how low can they go?

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With Schwab, Fidelity, TD Ameritrade and E*TRADE paving the way for lower equity trading costs, this is only the beginning. We anticipate more competitors to follow this trend to prevent customers from moving their money elsewhere.