Schwab Ends Commissions, Brokerage Stocks Tank

Charles Schwab Corporation SCHW announced it's eliminating stock trading commissions, sending its shares tanking along with the stocks of its competitors.

On Tuesday, Schwab said users will no longer pay $4.95 per trade for trading stocks and ETFs on its platform. Option trades will remain 65 cents per contract.

Why It’s Important

For the past several years, online brokers have been aggressively slashing prices in a war for market share. As recently as the beginning of 2017, Schwab charged $8.95 per trade before cutting trading commissions to $6.95, $4.95 and then eliminating them all together this week.

See Also: The Best Online Stock Trading Brokers

Fidelity followed suit with its own price cut from $7.95 to $4.95 commissions. TD Ameritrade Holding Corp. AMTD cut commissions from $9.99 to $6.95. Last year, Vanguard announced it would be eliminating ETF trading fees.

Startups such as Robinhood, Firstrade, TradeZero and others have also jumped into the mix with completely commission free trading platforms. JPMorgan Chase & Co. JPM launched its free trading app last August, and Interactive Brokers Group, Inc. IBKR eliminated its trading commissions last week.

The news is certainly good for traders, which will now have more options for free trading than ever before. However, the pricing war has placed more pressure than ever on online broker stocks. Here’s how they reacted to Tuesday’s news:

• Schwab was down 9.3%.
• TD Ameritrade was down 21.2%.
• Interactive Brokers was down 8.8%.
• E*TRADE Financial Corp ETFC was down 18%.

Benzinga’s Take

Investors should be monitoring Schwab’s fourth-quarter numbers due out in early 2019 for signs of how the commission cuts will impact Schwab’s overall numbers given it will likely be losing nearly $100 million in quarterly fee revenue.

In addition, traders should watch to see if the ongoing broker fee wars eventually eliminates trading commissions across the board among all online brokers.

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