My Personal Finance Journey

Personal finance observation, musing and decisions in a journey toward financial independence by 2020 with at least $3 million.


By Topics

Overall:
0. About (10)
1. My Progress (139)
2. Car & Home (107)
3. Credit (138)
4. Banking (33)
5. Saving (49)
6. Investing (308)
7. Taxes (89)
8. Spending (74)
9. Misc (97)
A. Archive (49)



MONTHLY ARCHIVE

Feb 2014 (3)
Jan 2014 (6)
Jan 2012 (1)
Apr 2011 (1)
Mar 2011 (1)
Feb 2011 (1)
Jan 2011 (1)
Dec 2010 (1)
Oct 2010 (1)
Sep 2010 (1)
Aug 2010 (1)
Jul 2010 (1)
Jun 2010 (1)
May 2010 (1)
Apr 2010 (1)
Mar 2010 (6)
Feb 2010 (2)
Jan 2010 (7)
Dec 2009 (3)
Feb 2009 (4)
Jan 2009 (8)
Dec 2008 (1)
Jun 2008 (2)
May 2008 (2)
Apr 2008 (5)
Feb 2008 (3)
Jan 2008 (15)
Dec 2007 (32)
Nov 2007 (6)
Oct 2007 (8)
Sep 2007 (9)
Aug 2007 (24)
Jul 2007 (2)
Jun 2007 (1)
May 2007 (3)
Apr 2007 (4)
Mar 2007 (4)
Feb 2007 (13)
Jan 2007 (6)
Dec 2006 (3)
Nov 2006 (7)
Oct 2006 (7)
Sep 2006 (6)
Aug 2006 (4)
Jul 2006 (10)
Jun 2006 (1)
May 2006 (3)
Apr 2006 (2)
Mar 2006 (6)
Feb 2006 (6)
Jan 2006 (3)
Dec 2005 (1)
Nov 2005 (9)
Oct 2005 (8)
Sep 2005 (13)
Aug 2005 (25)
Jul 2005 (16)
Jun 2005 (17)
May 2005 (19)
Apr 2005 (20)
Mar 2005 (24)
Feb 2005 (23)
Jan 2005 (36)
Dec 2004 (40)
Nov 2004 (34)
Oct 2004 (17)
Sep 2004 (21)
Aug 2004 (59)
Jul 2004 (37)
Jun 2004 (31)
May 2004 (29)
Apr 2004 (52)
Mar 2004 (49)
Feb 2004 (49)
Jan 2004 (31)
Dec 2003 (48)
Nov 2003 (52)
Oct 2003 (29)
Sep 2003 (8)
Aug 2003 (5)
Jul 2003 (2)
Jun 2003 (2)
May 2003 (5)
Apr 2003 (2)
Mar 2003 (2)
Feb 2003 (3)
Jan 2003 (29)



 

Online Brokerage Price War: Ameritrade, E*Trade, Fidelity and Schwab Involved

Contributed by mm | February 19, 2005 6:39 AM PST

E*Trade is the latecomer in the heated comptition of slashing trading prices. In a press release this Tuesday, it changed its original 3-tier price system to 5-tier, and cut the price across the board.

The new E*Trade pricing:

- Heavy Traders with 500+ trades/month: $6.99 per trade
- Heavy Traders with 50-499 trades/month: $7.99 per trade
- Heavy Traders with 5-49 trades/month: $8.99 per trade
- "Serious Investors" ($50,000 or more balance): $11.99 per trade
- "Main Street Investors" (less than $50,000 balance): $14.99 per trade

* Additional Per Options Contract Fee of $0.75-$1.75 applies.

E*Trade's price cut came after similar cuts by many online brokerage firms in the last couple of months, including:

- In January, Scottrade reduced limit order commission to $7, the same as market orders.
- Ameritrade launched new IZone service, a bare-bone service that offers $5 internet equity trades. (Ameritrade Streamer offered separately at $9.99/month.)
- Schwab, on February 8, cut base equity trade commission from $12.95, down from $19.95. This applies to accountholders with a balance between $50,000 ad $1 million. (Schwab cut the rate from $29.95 to $19.95 in November.)
- Within a week, Fidelity reduced its silver-level equity trade commission from $14.95 to $10.95.

I currently have the relationship with the following brokerage firms:

- One after-tax account with AmeriTrade, paying $10.95 per trade.
- One after-tax account, and one Roth IRA account with Fidelity, paying $8.00 per trade. (I gained the gold-level status because of employement -- Fidelity is the broker that operates Microsoft 401(k) and ESPP program.)
- One Roth IRA account with BrownCo (a subsidiary of JP Morgan), paying $5 per trade.

As I only trade a limited times every year, there is not much incentive for me to swap ship even the price war continues. After all, I believe frequent trading is a drain of performance for most people. To be eligible for E*Trade's most preferred pricing, one needs to pay out 500 * $6.99 = $3,495 commission a month, or $41,940 a year, as a minimal -- that's a very expensive 4.19% load even on a million-dollar portfolio.

(By the way, did I mention you can actually pay nothing for 20 online trades every month? Take a look at my discussion of Freetrade.)

This Post Has Received 5 Comments. Share Your Opinions Too.


mercedes Commented on March 1, 2005

I recently stumbled upon your blog. I've enjoyed reading your tips. I'm new to investing and have been doing a lot of reading on the internet this past month.

Now what do you think about Sharebuilder.com and Firstrade.com?


mm Commented on March 1, 2005

Thank you for reading pfblog. I have an account with Sharebuilder but I have never tried Firstrade. I believe the answer really depends on what kind of investor you are. If you don't plan to trade very frequently, it does not make much a difference even if you choose a low-cost broker. If you decide to manage individual stocks, you probably want to avoid Sharebuilder because of its lack of flexibility.


mercedes Commented on March 1, 2005

Thanks for the reply!

Well, I don't plan on being an active trader. I'd like to ease into the stock market a bit.

Right now, my main focus is to start by buying a few mutual funds, maybe through Firstrade, since they have "zero fees" (outside of cashing out the fund). But it seems too good to be true... how do they make money then? I've been reading other boards, and many people think Firstrade will do what Scottrade did and start charging fees all of a sudden.

Regardless, at least for now it seems like a good deal, as long as there really are no commission fees for the mutual funds. So if you have any insight as to how they make money off of this, please feel free to divulge! :)


mm Commented on March 2, 2005

I can only guess how they can make money. First, some people will inevitably quit their mutual fund positions prematurely to incur the back-loaded fee. Second, some will not always deploy 100% of their account balance in investments, thus allowing the brokerage firm to earn interest on cash balances. Third, Firstrade can earn some "soft money" from mutual funds. Some of these soft money is called 12b-1 fee. Check out this:
http://www.pfblog.com/archives/273_etrade_12b1_rebate_program.shtml.

Make sense?


Wayne Dye Commented on March 12, 2005

I've been a member of Schwab (Platinum account) since about 1996. I always answer your questions which you never read or do anything about. I suggested one of the reasons you could lhelp your customers was to LOWER your rates. Now you finally realize this after the Tequesta Office her in Florida has gone under and is down to 2 people now. You were charging $29.95 when others were charging as low as $5. I know Schwab is hurting BAD, I heard it over TV also. Most of your customers have other accounts with the discount brokers, I do. You lowered it to $19.95 now it is getting competative with the real discount brokerage houses. In a way I can't feel sorry for you; you sort of asked for it. NOW you are in a real brokerage war, the market is in the tank. Just thought you would like to lknow.


Add Your Comments










Remember personal information?




(It will take a few moments for your comment to be published. Please do not close the window until then.)


Read More ... 311 Posts In The Same Category










This page was last rebuilt at February 09, 2014 08:23 AM PST. (380 Words)
 

RSS FEED





PERSONAL FINANCE BLOGS I READ

Consumerism Commentary
Get Rich Slowly
My Money Blog
All Financial Matters
The Simple Dollar






.



Copyright 2003-2014, PFBlog.com. All Rights Reserved. (Privacy Policy)