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E*TRADE Finally Takes Part in the Online Broker Price War

Zacks Equity Research

The online broker price war has intensified with New York-based online discount stock brokerage firm, E*TRADE Financial Corporation ETFC joining the fray.

On Mar 2, the company announced a cut in its base stock and ETF commission to $6.95 per trade from $9.99 per trade, signifying a reduction of 30.4%. The company will also cut down its standard rate, effective Mar 13. It will also create a lower-priced $4.95 tier for investors who trade at least 30 times per quarter, down from a prior active investor standard of 150 trades per quarter.

Before E*TRADE, Fidelity reduced its commissions on U.S. stocks and ETFs by approximately 38%, from $7.95 to $4.95 per trade. The Charles Schwab Corporation SCHW responded to this by matching the price to $4.95. In early February, Schwab lowered its commissions to $6.95. Moreover, another major online brokerage firm, TD Ameritrade Holding Corporation AMTD, also lowered its online equity and ETF trade commission by roughly 30% to $6.95 plus 75 cents per contract.

As you can see, TD Ameritrade has not slashed commissions as deeply as Fidelity, Schwab and E*TRADE.

Bank of America analyst, Micheal Carrier expects the price competition to continue and may affect the top line of these companies.

E*TRADE generates 23% of its revenues from commissions. Lower charges may impact the company’s revenues by an average 5-6%, according to a nerdwallet analyst, o’shea . Per E-Trade’s CFO, Micheal Pizzi, derivative traders are one of the company’s core group of clients due to their good service and trade execution. He believes that despite the lower fee charged by other platforms, active derivative traders are unlikely to shift just to save some money.

Following the announcement of price cut in early February, Schwab reported a revenue loss of roughly $15 million on a monthly basis. Likewise, other brokerage firms including Fidelity, E*TRADE and Ameritrade will have to face revenue pressure.
   
Shares of E*TRADE declined roughly 2.8% since the announcement of the commission cut. Moreover, the stock has declined nearly 1% over the last three months, underperforming the Zacks categorized Financial - Investment Bank industry growth of 6.2%. However, E*Trade currently carries a Zacks Rank #2 (Buy), indicating solid upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.


A better-ranked stock in the same industry worth considering is Evercore Partners Inc. EVR, carrying a Zacks Rank #1 (Strong Buy). In the past two months, its earnings estimates have been revised 9.7% upward. Moreover, its shares gained 63.9% over the past one year.

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E*TRADE Financial Corporation (ETFC): Free Stock Analysis Report
 
The Charles Schwab Corporation (SCHW): Free Stock Analysis Report
 
TD Ameritrade Holding Corporation (AMTD): Free Stock Analysis Report
 
Evercore Partners Inc (EVR): Free Stock Analysis Report
 
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