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IBKR Lite to Hurt Prospects of Other Online Brokerage Firms

To garner further market share in online trading, Interactive Brokers Group, Inc. IBKR is set to launch IBKR Lite service in October, which will provide U.S. stock market investors “commission-free, unlimited trades on US exchange-listed stocks and Exchange Traded Funds.” Notably, the company’s existing services will be rebranded as IBKR Pro.

Thomas Peterffy, Chairman and CEO of Interactive Brokers said, “In order to attract a broader audience, we wanted to remove any impediments to opening an IBKR account. With the addition of no commissions or fees to trade US exchange-listed stocks and ETFs, no account minimums, and no cost to maintain an account for IBKR Lite, we believe Interactive Brokers will offer the best pricing options for both professional and retail investors.”

IBKR Lite will be made available to existing and new clients, and they will be able to switch between the two services “up to three times and then once per quarter.”

Peterffy further stated, “With Interactive Brokers, clients can choose to pay no commissions and have their orders routed to market makers like many other retail brokers do or pay Interactive Brokers’ ultra-low commissions and receive professional executions through our IB SmartRouting system.”

As IBKR Lite will enable retail investors to trade stocks and ETFs almost free of cost, it is expected to attract many. This is likely to support Interactive Brokers’ financials at a time when low interest rates and significant volatility in the markets is hurting the brokerage industry.

However, other online brokerage firms like Charles Schwab SCHW, TD Ameritrade Holding AMTD and E*TRADE Financial ETFC, which face similar macroeconomic concerns, are likely to get affected adversely. Of late, though these companies have lowered fees/removed minimums to trade stocks and ETFs, there are conditions that need to be fulfilled by investors.

At present, Schwab charges $4.95 for stock trades, while E-Trade and Ameritrade charge $6.95 per trade. Also, these firms allow customers to trade only selected ETFs for no commission. Hence, following this announcement, shares of these three companies tanked in the range of 2-7%.

This could also lead to a price war, with each company trying to outdo the other to attract more investors. Though this will be a good thing for retail investors, financials of these companies might get hurt as trading fees arelikely to decline.

All the above-mentioned firms currently 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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