Charles Schwab will be eliminating its online trading commissions for U.S. stocks, ETFs starting on October 7. The move slashed Schwab stock by 9.7%.
California based bank and stock brokerage firm Charles Schwab said that it is finally ending its battle in the brokerage sector. They decided they are ending commissions for online trading in U.S. stocks, exchange-traded funds, and options.
Just for a reminder, in the February of this year, together with Fidelity Investments, Charles Schwab completely cut its commissions it had been charging on hundreds of their exchange-traded funds. The ongoing war was all about exciting the investors since they all usually profit from the falling costs.
Schwab at the times fired the first round, saying it was doubling the available number of commission-free ETFs, to 503. Be it as it may, at the time of writing, Schwab’s stocks went down by 9.7% just because investors were afraid the change will hit margins. The company said commission fees make up 3% to 4% of net revenue each quarter.
Just for comparison, Schwab’s competitor TD Ameritrade fell down by an enormous 25.8% for its worst day in 20 years. Also, electronic trading platform E-Trade stocks plummeted by more than 16% for its worst day in the last ten years.
Starting on Oct. 7, Schwab, which has around $3.72 trillion in client assets alone, will be, as previously mentioned, cutting its trading commission cost for U.S. stocks, ETFs and options from the previous $4.95 to zero.
That means that trading options will continue to cost 65 cents per contract. Also, the changes will be applied to Canadian securities as well.
The company’s founder and Chairman Charles Schwab said in a press release that the firm’s “passion has been to make investing easier and more affordable for everyone.” CEO Walt Bettinger added:
“This is our price. Not a promotion. No catches. Period.”
After we have witnessed a Californian start-up Robinhood offering free stock trading back in 2013, analysts commented that there is a major probability all big brokerage companies go to zero – as forced.
With this noted, let us just mention that the US largest electronic trading platform operator, Interactive Brokers, decided exactly that – to go commission-free. JPMorgan Chase also went the same path in August this year.
But it’s not just them. Last summer, the American registered investment advisor Vanguard Group that has more than $5.3 trillion in assets under management also said investors using its online brokerage platform “could trade all ETFs on a commission-free basis.”
Managing director and equity research analyst at JMP Securities Devin Ryan said:
“Free trading isn’t a new theme in the industry, but the cadence of announcements from firms offering zero commission trades seems to be picking up, and we also note that many of these companies have more credible platforms (and capital behind them) than the offerings of the past.”
Schwab’s chief financial officer, Peter Crawford, approximated that the commissions fed about $90 million to $100 million in quarterly revenue. Still, the commissions per revenue trade have been decreasing for a few years in a row.
Last time the company lowered its commission fee was in February 2017, and back from then, the assets under management grew from $2.92 trillion to the current $3.72 trillion. Schwab’s announcement could add some pressure on TD Ameritrade and E-Trade to drop commission fees. Still, trading commissions are a huge deal for these two companies, unlike Schwab that holds around 7% annual revenue.