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E-Trade Is Latest to End Online Trading Commissions

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E-Trade has followed Schwab and TD Ameritrade, announcing commission-free trades for stocks, ETFs and options.

E-Trade is eliminating commissions on all three beginning Monday, the same day as Schwab. TD Ameritrade will stop charging commissions Thursday.

Not to be outdone, E-Trade is also reducing its active trader price for options from $0.65 per contract to $0.50. (Schwab and TD Ameritrade charge $0.65 per contract.)

“With this new commission schedule we are further raising the bar, delivering an unrivaled experience at price points that cannot be beat,” said E-Trade CEO Mike Pizzi in a statement. He went on to explain that while Main Street investors will be able to trade stocks and ETFs at no cost, the brokerage’s most active derivative trades will enjoy its “industry-leading contract rate.”

Like Schwab and TD Ameritrade, E-Trade will lose revenue as a result of commission-free trades. Based on second-quarter 2019 operating results, E-Trade estimates its pro forma revenue will be reduced by approximately $75 million.

Soon after E-Trade’s announcement, Fitch Ratings reported that the online trading commission cuts announced by the three brokerages this week are a “credit negative for the retail brokerage industry,” but other retail brokers will likely follow.

No-commission trades “will pressure industry revenues, further emphasizing the importance of net interest income from accompanying bank sweeps, wealth management and investment management revenues, and will likely drive further industry consolidation,” wrote analysts Michael Taiano and Dafina. 

Of the three brokerages, Fitch Ratings rates only Schwab, which the analysts note  is “better positioned to weather the decline in trading commissions than many of its competitors,”  due to its “scale and breadth of offerings.”  Still Schwab’s revenues, already under pressure from declining commissions, low interest rates and falling fees for mutual funds and ETFs, will suffer, according to the analysts. (Schwab’s CFO said the elimination of trading commissions will cut annual net revenue by 3%-4%, all else equal.)

They conclude: “It  will be increasingly important for Schwab to further improve cost efficiencies while also growing client assets and exploring additional sources of revenue from its sizable client base,”

As of Monday, investors will be able to trade stocks and ETFs online for no cost at multiple brokerages and online-only platforms. 

In addition to Schwab, TD Ameritrade and E-Trade, they include Interactive Brokers — which launched its new IBKR Lite platform for commission-free trades of stocks and ETFs last week, possibly precipitating Schwab’s announcement this week —  JPMorgan’s You Invest, which allows 100 free stock or ETF trades per year and Merrill Edge, which allows 100 free stock or ETF trades per month for customers who have a banking relationship and a minimum $100,000 on deposit with the firm.

Investors can also take advantage of commission-free trades at several online platforms, including Robinhood, SoFi Invest, M1 Finance, TradeZero, Webull, Square and Dough.

— Check out Is Free Trading at E-Trade, Schwab and TD Ameritrade Really a Boon for Investors? on ThinkAdvisor.


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