U.S. Markets closed

Brokerage Stocks Plunge as Price War Intensifies

Zacks Equity Research

Cost of investing continues to decline, as major brokerage firms reduce fees to attract potential clients.

Close on the heels of announcing fee cuts across various investment options, The Charles Schwab Corporation SCHW slashed fees again. Now, the company has lowered its standard online equity and ETF trade commissions to $4.95 from $6.95 and reduced options pricing to $4.95 plus 65 cents per contract, effective Mar 3, 2017.

This followed Fidelity Investments Inc.’s announcement of its plans to cut trading fees nearly 38% to $4.95 for online trade commissions for U.S. stocks and ETFs. Fidelity’s move came after Schwab had cut its trade commissions in early February, which temporarily placed it below the price points of both Fidelity and Vanguard.

Moreover, later in the day, another major online brokerage firm, TD Ameritrade Holding Corporation AMTD lowered its online equity and ETF trade commissions roughly 30% to $6.95 and options pricing to $6.95 plus 75 cents per contract, effective Mar 6, 2017.

At present, E*TRADE Financial Corporation ETFC is the only major player in the online brokerage industry still charging $9.99 per online stock trade.

While slashing of trading fees is beneficial for the retail investors, shareholders seem to be wary of potential strain on these brokerage firms’ profitability. Hence, the share prices of Schwab, TD Ameritrade, E*TRADE and Interactive Brokers Group, Inc. IBKR declined in the range of 2.5–11%. Fidelity is a privately held company.

Notably, while announcing price cuts in early February, Schwab had indicated revenue loss of roughly $15 million on a monthly basis. So, with further cut in prices, the company is expected to face more revenue loss. Likewise, other brokerage firms including TD Ameritrade and Fidelity will have to face revenue pressure.

So if we look at the price performance of these brokerage firms since Schwab begun the price war by announcing slashing trading fees on Feb 2, 2017, all the above mentioned four stocks have underperformed the Zacks categorized Investment Brokerage industry.  



Currently, E*TRADE carries a Zacks Rank #2 (Buy), while Schwab, TD Ameritrade and Interactive Brokers carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Everything You Need to Know About Snapchat BEFORE It Goes Public

You may be curious about the buzz surrounding Snap Inc.'s IPO on March 2. With the company expected to be valued around $22 billion, it is expected to be the largest IPO since 2014. But should you snap up this tech stock on Day 1?

In the 2017 IPO Watch List, you'll get an inside look at Snap's exciting prospects and potential challenges. You'll also learn about 4 other exciting tech companies with jaw-dropping growth. Each could go public in the coming months.

Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the latest scoop. Download this IPO Watch List today for free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
E*TRADE Financial Corporation (ETFC): Free Stock Analysis Report
 
The Charles Schwab Corporation (SCHW): Free Stock Analysis Report
 
Interactive Brokers Group, Inc. (IBKR): Free Stock Analysis Report
 
TD Ameritrade Holding Corporation (AMTD): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research