Online trading margins heading lower

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Last week I pondered what the launch of Zecco, a free online stock trading service, could translate to as far as what it could do to online brokerage firms' profit margins on online trading. I gave a couple of different paths and possible longer-term implications, but this morning one of the paths has already been set.

Bank of America Corp (NYSE: BAC) is going to offer free online stock trading for self-directed investors with account balances of over $25,000.00. Zecco's minimum balance is $2,500.00 for free online trading, only a tenth of the requirement for free trading at Bank of America. While there is a discrepancy between these two offerings, it is almost certain we will be seeing more freebie or discounted offerings from other online trading operations elsewhere.

That can't be good for profit margins at E*Trade Financial Corp (NYSE: ET), TD Ameritrade Holding Corp (NASDAQ: AMTD), Schwab Corp (NASDAQ: SCHW) and others. To point, online brokers are lower this morning in pre-market trading: ET is down 4.5% at $23.36, AMTD is down 5.5% at $18.04, and SCHW is down 4.2% at $17.30. I haven't seen any trades or indications on TradeStation Group Inc (NASDAQ: TRAD), although they are also an online trading firm specializing in direct trading access for stocks, options, futures and forex.

The big three in online trading -- ET, AMTD, SCHW -- can't be too thrilled about this as they had finally found some price stability after commission wars left only them standing as the leaders.

Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers

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Last updated: March 18, 2010: 12:18 AM

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