Brokerage firms are making changes to their business models as the industry collectively moves towards optimizing its services. Financial options are becoming increasingly popular as more people across the world enter into business with brokers.
Broker reduces trading fees
E*Trade has made a move to match its competitors in what is being called one of the most dramatic moves in the price wars that are taking place between brokerages in the US. The brokerage has announced the elimination of fees for the online trading of some funds and stocks. The firm has also reduced the prices that are charged on options. From now on, each contract will attract a fee of $0.65. Active trader pricing has been kept at $0.50 for each contract.
The brokerage firm said that they recently reduced investment barriers in a bid to provide their clients with better service. Core Portfolios and Prebuilt Mutual Fund Portfolios will require a minimum of $500, while the brokerage requires traders who go for automatic investing recurring deposits to place a minimum of $25. These lower investment barriers will allow more traders to enter into business with the brokerage and put it in a competitive position among the top brokers.
According to Mike Pizzi, E*Trade’s CEO, the commissions and fees that the brokerage has cut will cost them close to $75 million per quarter in terms of revenue. The figure is about 3% of the total net quarterly income for the firm. This shows how much the company is willing to sacrifice to remain in contention as the top broker in the US.
Price wars escalate among US brokers
E*Trade’s amendments to its commissions and fees become the latest in a series of price changes that have been made by US brokers over the past week. These price wars continue to escalate as these brokerages slash prices in different aspects of their business. Interactive Brokers (IB) triggered these price wars with the introduction of IBKR Lite. The platform launched by IB offers its clients unlimited commission-free trading on EFT and US Stocks.
After IB made this announcement, several of its competitors saw their share price tumble as investors seemed to show an interest in the commission-free services on offer from IB. Charles Schwab, TD Ameritrade, and E-Trade Financial are some of the brokerages whose share price fell.
In response to the move made by IB, Charles Schwab announced that the offering of commission-free trading on its brokerage platform. The firm’s CFO said that commission-free trading has been coming for a long time and the firm did not see any reason to say any longer. TD Ameritrade also removed trade commissions for some stocks, and it seems that these price battles will continue over the next few months.