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
Online trading margins heading lower
Posted Oct 11th 2006 9:15AM by Jon Ogg
Filed under: Before the Bell, Good news, Consumer Experience, Competitive Strategy
Chasing Value: 43% Gain to Build a Position in KB Homes
Closing Bell: St. Patrick's Day Hat Tricks (GE, FUQI, SNV, HIG, BBI, PLCM, ERC, MEE)
Everyone's Talking About GE
Reader Comments (Page 1 of 1)
10-11-2006 @ 5:30PM
Richard G. Newman said...
Good for Bank of America. I am happy to pay the $7.00 they currently charge when compared to the "full service" broker's. By the way, full service equates to getting you to buy garbage and when it drops, selling it. That way you lose money three ways, going in, going out and the loss from the "real winner" recommendation. Brokers are magicians - they turn money into doo doo.
10-11-2006 @ 6:19PM
Elizabeth said...
Bank of America makes sufficient high interest charged on Self Directed Margin accounts, in frequent Traders accounts, they don't NEED to charge commissions. They also make numerous margins Calls with all the frequent Traders of Penny stocks, again making good profits to not need to charge fees.They make many HIGH fees on Options, PUTS/ CALLS accounts, also to negate the charging "NO Fee commissions". Full service Brokerages usually don't allow such HIGH RISK trades and thus do NOT make fees on HIGH interest MARGIN fees and so MANY Margin calls, HIGH OPTION FEES etc. Many Full SErvice BRokerages also don't charge high semi annual fees for NOT making Trades in accounts as Bank of America charges. Bank of America's EXTRA fees more than compensate for their NOT charging Trading fees for ACTIVE Trader's accounts.