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Contributors: Douglas McIntyre Jon C. Ogg

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Wednesday, October 11, 2006

Online Brokerage Firms Face Margin Pressures Sooner Rather Than Later

Last week we 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. We gave a couple of different paths and what the longer-term implications could be, but this morning one of the paths has already been set.

Bank of America (BAC) is going to offer FREE stock trading for its online direct trading to accounts with a balance of $25,000.00. Zecco's minimum balance is $2,500.00 for free online trading, so only 1/10 of the requirement for free trading compared to Bank of America. This is showing a discrepancy out there between these two offerings, but you can now be almost certain that you will have other freebie or discounted-discount offerings from other online trading operations elsewhere.

That can't be good for the profit margins at E*Trade (ET), TD Ameritrade (AMTD), Schwab (SCHW) and others. To point, online brokers are trading lower this morning: 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. We haven't seen any trades or indications on TradeStation (TRAD), although they are an online trading firm specializing in direct trading access for stocks, options, futures and forex.

The big 3 in online trading (ET, AMTD, and 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 C. Ogg
October 11, 2006
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