The parade of online brokers eliminating stock and ETF trading commissions continued on Friday when Ally Financial Inc (NYSE: ALLY) announced it's cutting its $4.95 trading fees for its Ally Invest customers.
Ally said customers will pay no fees for online stock, ETF and option trades starting on Oct. 9. Users will continue to pay a contract fee of 50 cents for all option trades.
Why It’s Important
The latest wave in a multi-year pricing war among online brokers is effectively eliminating trading commissions all together.
See Also: Best Free Stock Trading Brokers
Last week, Interactive Brokers Group, Inc. (NASDAQ: IBKR) toppled the first domino by cutting its trading fees to $0. Charles Schwab Corporation (NYSE: SCHW), TD Ameritrade Holding Corp.(NASDAQ: AMTD), E*TRADE Financial Corp (NASDAQ: ETFC), TradeStation and Ally have since followed suit.
On Thursday, Wells Fargo issued sweeping downgrades and price target cuts among the group of online brokers and said the combination of slowing organic revenue growth, falling interest rates and disappearing commission revenues will continue to weigh on the stocks.
Wells Fargo said eliminating commission fees has made it difficult to make a bull case for the space at the moment.
Online brokers may eventually be able to replace lost trading revenue with order flow payment revenue or other sources. However, until investors get clarity on just how much of a financial impact the fee cuts will have and what exactly the "new normal" will be, it’s unlikely the stocks will gain much traction in the market.
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