Yesterday, Charles Schwab announced on their website the move to lower commissions for US stocks, ETF and options down to zero. The fine print is below
Beginning October 7, 2019, the company will reduce U.S. stock, ETF and options online trade commissions from $4.95 to zero. And with no minimum account size3 to open a full featured Schwab brokerage account, every investor, no matter how large or small, can benefit from the expertise and support of a firm that has been entrusted with more than $3.7 trillion in client assets. Every Schwab client using our web and mobile channels automatically qualifies for the new pricing, without opening a new account, making a new deposit or maintaining a minimum balance of any type.Source: Charles Schwab
I have been a Robinhood user for more than two years. What drew me to Robinhood is the ease of making trades. Instant, straightforward and especially free of commissions. If a trade incurs a fee, whether it’s a buy or sell, your return will take quite a hit, particularly when you take into account the compounding interest. Without the free-commission feature, I wouldn’t use Robinhood and I am confident that it wouldn’t have taken off among millennials without it.
Charles Schwab’s move is to lure the retail millennial customers to their platform. I see it as a win for consumers who now have options to make free stock trades.
As for Robinhood, the startup has received a lot of accolade for its disruption. But now it will have a fierce competitor who aims to take away the appeal of its biggest selling point (no commission). Neither the current user experience nor the brand awareness guarantees a competitive advantage in the long term. To get traders’ business, these brokers have to somehow offer more values and do it on a consistent and regular basis.
In short, the competition is on now