It has been a month since major online brokerages – Interactive Brokers (IBKR - Free Report) , Charles Schwab (SCHW - Free Report) , TD Ameritrade Holding (AMTD - Free Report) and E*TRADE Financial (ETFC - Free Report) – begun offering commission free trading to attract new clients. These companies eliminated commissions for stocks, ETFs and options trades. Nonetheless, they continue to charge 65 cents per contract for option trading.
Garnering market share was the primary reason for announcing zero commission trades. Earlier, Schwab charged $4.95 for stock trades, while E-Trade and Ameritrade charged $6.95 per trade.
Now, let’s check the monthly performance data of these companies for October and see how they have fared.
Starting with Schwab, the company opened 142,000 new brokerage accounts in October, up 31% sequentially and 7% year over year. Also, total client assets were $3.85 trillion, up 2% from September 2019 and 14% from October 2018. Further, net new assets of $35.2 billion improved significantly from the previous month as well as year over year.
For E*TRADE, net new retail assets came in at $0.7 billion, down 50% from the previous month and 42% from the year-ago month. Further, number of accounts at the end of October totaled 7.2 million, down slightly from the prior month but up 20% year over year. Total customer assets grew 4% sequentially and 16% from October 2018 to $629.9 billion.
TD Ameritrade recorded total client assets of $1.36 trillion, up 2% sequentially and 10% year over year. The company did not provide data for new account opening and new assets.
Further, Interactive Brokers reported net new accounts of 7,200, rising 7% from September 2019 but declining 24% from October 2018.
After going through the above information, there is no doubt that online brokers were able attract new investors with this offering, with Schwab being the biggest gainer. This also cheered investors, as the company’s shares have rallied nearly 3% since the announcement of the monthly activity data.
Initially, following the announcement of commission free trading, shares of these online brokerage firms tanked as investors seemed concerned about lost revenues from trading activities, which form a significant portion of the companies’ total revenues. Further, with lower interest rates putting pressure on net interest margins, near-term financial performance is expected to be weak for these brokers.
Nonetheless, as these companies are able to attract new clients, this will help generate fees from providing other services. Still we have to wait and watch for the next few monthly data before concluding whether this plan has long-term benefits or not.
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