Charles Schwab Commission Rate Cut

Observing the listlessness and lack of action in retail investors and active traders, Charles Schwab has come up with a reduced brokerage commission from $12.95 to $8.95 per trade. Most discount brokerages firms like TradeKing and Zecco have already seen a lot of damage, but do we think this latest move by Charles Schwab can lead to a price war?

First let’s look at some facts about Stock Brokerage Firms:

With the increase in the brokerage charges, the daily average trading activity carried out by active traders through different brokerage houses has fallen as much as 10 percent in the span of 2 months, according to a Sandler O’Neill research note issued this week.

In the meantime, TD Ameritrade and Schwab among others are forced to waive fees on some managed funds, because of the low interest rates, exerting a lot of pressure on company revenues.

According to Seth Dadds, an analyst at Baltimore-based equity research firm GARP Research “If one (company) cuts commissions, chances are something’s going to happen with one of the others, that’s typically what’s happened in the past,”  it seems there is going to be massive price war with E-trade pricing at 12.99, Scottrade at $7 per trade and Fidelity at $19.99.

However, if you look more closely, according to the analysts at CompareBroker we believe it is more of an adjustment Charles Schwab had to make to be more competitive. The online brokerage tools provided by Charles Schwab are much worse than the tools by E-trade, the brokerage firm recommended by us. In the simple portal market Charles Schwab is still very negatively priced against TradeKing’s $4.95 per trade. So to conclude we would say if you want simple platform to start your trading practice TradeKing and Zecco would be your preferred options otherwise if you want all fancy tools go with E-trade, the most trusted and reliable name in brokerage industry.

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