Charles Schwab, an online stock brokerage company, has waged an unexpected (very) low-fees wars against its competitors that have sent rival online brokerage service TD Ameritrade into deep ends with its stock fall by at least 25%. As a response, 10 hours after Schwab waged war, TD Ameritrade fired back.
Early Tuesday, Charles Schwab shook the online brokerage sector after announcing that starting October 7, it will implement a policy that will render online trades of U.S. and Canadian stocks, ETFs and options commission-free.
Currently, Schwab charges a $4.95 commission on U.S. stock, ETF and options trades made online but next week, the company will no longer charge commissions on the said services. The zero-commission policy applies “across all mobile and web trading channels,” the brokerage said.
“This is our price — not a promotion. No catches. Period,” founder and Chairman Charles Schwab said in a news release. “Price should never be a barrier to investing for anyone, whether an experienced investor or someone just starting on the investing path.”
Meanwhile, Christian Magoon, CEO of Amplify ETF, expects that Shcwab’s move will inevitably invite rivals to follow through. “This move will put pressure on other brokerage firms to respond – especially when it comes to commission-free ETF trading,” he said. “It will ultimately reduce costs for most investors.”
Magoon wasn’t wrong as TD Ameritrade quickly responded Tuesday evening with a similar change in commission fees. The online brokerage firm said that it too would no longer charge commissions for the online stock, ETF, and option trades from its previous rate of $6.95.
Following Schwab’s announcement, its stock plunged almost 10%. Online broker E-Trade cratered 16%, while Interactive Brokers Group was also down 9%. Furthermore, caving into Schwab’s taunts would cause TD Ameritrade a revenue impact of $220 million to $240 million per quarter for slashing commissions, the company estimates.