The retail Stock Brokerage business has always been a competitive one, with the major players constantly advertising and adding new features. This week the business has made headlines as Interactive Brokers and Charles Schwab have introduced programs where they won’t charge trading commissions. Schwab’s own shares traded 10% lower in Wednesday’s trading after the announcement, while TD Ameritrade and ETrade dropped over 25% and 16% respectively. With the StockBroker Wars in full effect, let’s take a look at which brokers provide the most value.
Interactive Brokers- With the announcement of its IBKR Lite program, which provides commission-free trading that also doesn’t charge account fees, Interactive Brokers has become much more competitive. Previously commissions have been charged on a per share basis, which allows investors with smaller accounts to pay commissions typically around $1.50 or less. Another major plus for Interactive Brokers is its large availability of shares for investors to short, which is key in a bear market. Interactive Brokers allows you to trade on your web browser, or on their Trader Workstation Desktop Platform. To become more competitive, Interactive Brokers will need to bring more features to Trader Workstation, as it’s clearly outclassed currently by TD Ameritrade’s Thinkorswim platform.
TD Ameritrade- With the most dynamic and feature-filled desktop trading platform in the business in Thinkorswim, TD Ameritrade can provide a lot of value to the average investor. Thinkorswim can integrate several indicators into a single chart while maintaining aesthetics and ease of interpretation, and also provides many easy-to-use order shortcut buttons that are programable. The only drawback to TD Ameritrade is the stated commission of $6.95 per trade. Despite its world class desktop platform, TD Ameritrade will need to lower it’s stated commission of $6.95 in order to remain competitive in the market.
Charles Schwab- Schwab’s recent announcement of no trading commissions takes its value to another level. The brokerage provides the ability to trade on the web or via its trading software, but neither provide much in the way of unique value. Given this shortcoming, Schwab has had to be all-in when fighting the trade commission war through its strong marketing push.
With commissions currently driving the Stock Broker Wars, brokerages will need to create innovative tools and platforms in order to stay competitive, while at the same time lowering commissions. The fight certainly isn’t over, but this week’s developments have clearly shown us which way the industry is headed.