Discount

Charles Schwab slashes stock trading fees to $0. Then its shares fell 10%

Snacks / Wednesday, October 02, 2019

Big summer blowout... Stock trading is 100% off. Online broker Charles Schwab will stop charging $4.95 on stock, options, and ETF trades starting Oct 7th. But the commission-free announcement dropped Chuck's shares 10% — and rival E-Trade fell 14% and TD Ameritrade plummeted 26%. Here's the percentage of all their revenues that come from trade commissions:

  • E-Trade = 16%
  • TD Ameritrade = 25%
  • Charles Schwab = 7% — Chuck's more diversified in how it makes money, so killing a revenue source won't sting as badly.

Back in the day... buying a stock meant yelling into phones and paying a fee that might cost you more than the stock itself. Chuck is betting that sacrificing short-term revenue (the $4.95 it makes today for each trade) will win customer love and make more money long-term. But here's our Snackable history of stock trading fees:

  • $49/trade: That was the average trading commission in 1975, when Chuck launched its discount brokerage.
  • $10/trade: The average commission dropped by 2015, triggered by Robinhood's commission-free trading app, which launched in 2013 (full disclosure: Robinhood Snacks... is owned by Robinhood).

This is now a price war... and price wars destroy profits. Once a large company starts slashing prices, it can become a price competition among rivals that ends at rock-bottom prices (customers love it. Competition is good.). E-Trade and TD Ameritrade shares fell Tuesday because now they're pressured to join the commission-free battle, too — everyone's profits get wounded in this war.

Get Your News

Subscribe and thrive

Snacks provides fresh takes on the financial news you need to start your day. Chartr provides data visualizations on business, entertainment, and society. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.