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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.

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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
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