Charles Schwab Takes the Lead on Zero-Dollar Commissions Structure
This week, there was a major earthquake in the stock market – and I’m not talking about the two massive down days we had this week.
On Tuesday, Charles Schwab (NYSE: SCHW), the pioneer in low-cost commissions, lobbed a grenade onto Wall Street. The company announced it was going to a zero-dollar commission structure on all trading.
On Wednesday, TD Ameritrade and E-Trade matched the move. Fidelity Investments has yet to do the same.
We’ve come a long way since the 1980s and 1990s when your broker was happy to charge you 2% to get into a trade and another 2% to get out…
Imagine being down 4% from the outset. There was no such thing as day trading to scalp a few pennies here or there. Options trading was truly for society’s wealthiest!
After the internet revolution, online trading went mainstream and commission rates dropped to around $30 fixed. As time passed, that number fell to less than $10 and, more recently, less than $5.
Even at those low rates, commissions still took a bite out of short-term trading.
After all, the goal is to make money… not pay money to the brokerage firm.
So who wins from the new commission structure? We do!
The War Room just became more profitable by default.
Stock commissions are zero… and so are options commissions. But you’ll still pay a charge per options contract. That’s going to be the next domino to fall.
Options trading has outpaced the growth of stock trading as more and more investors have become familiar with this part of the investment arena. And, as War Room members can attest, options trading can be highly profitable…
Remember Bryan’s huge FedEx win? One member even found himself shopping for a car after that one!
The big losers from the recent series of events are the brokerage firms and the “free” platforms like Robinhood. Many of these firms saw their share prices fall by 10% to 25% overnight after the Schwab announcement.
Can you imagine the private market hit for Robinhood?
What is Robinhood’s model now that stronger platforms and more highly capitalized companies are offering more? In hindsight, you can thank Robinhood for pressuring the mainstream brokers into the race to zero commissions.
The big brokers aren’t going out of business. Places like Ameritrade are still chock-full of fees. Live broker assistance, wire transfers, foreign stock holdings and nonstock holdings in your IRA are all subject to fees.
These brokers are also rapidly benefitting from upgrades in technology, lower employee headcount (the dreaded voice-activated menu), increased trading fees from the volume of stock and options trading (where the brokers still have the ability to make a small spread), as well as inroads into money management and specialized platform trading, which customers still have to pay for.
Arguably, people will trade more often after this seismic shift. And yes, brokers will make some of it up on volume!
Action Plan: The zero-commission move is great for investors and especially traders like you and me. While I had already negotiated a much lower rate than the “official” rates, due to how much I trade, it certainly was not zero! I wonder if I can convince them to pay me to trade? Kind of like negative interest rates!
With this new zero-dollar commissions structure, you have no excuse not to trade. So what are you waiting for? Join us in The War Room today!