TD Ameritrade the Latest to Move to $0 Commissions

In a move that shocked nobody, TD Ameritrade Holding Company NASDAQ: AMTD became the latest brokerage firm to announce they are eliminating commissions for online stock, exchange-traded fund (ETF) and options trades effective Thursday, October 3, 2019. Clients who are trading options will pay $0.65 per contract with no exercise and assignment fees.

In a statement announcing the move, Tom Hockey, president and chief executive officer of TD Ameritrade said, “We’ve been taking market share with a premium price point, and with a $0 price point and a level playing field, we are even more confident in our competitive position, and the value we offer our clients.”

“This is great news for our clients and thanks to the diversity of our business model, we’re able to make it a reality,” said Steve Boyle, chief financial officer, TD Ameritrade. Boyle also announced that the firm expected a loss of $220-$240 million per quarter (approximately 15-16% of net revenues). TD Ameritrade plans to deliver more information about their fiscal 2020 plan when they release their earnings report later in October.

The announcement by TD Ameritrade comes just a day after Charles Schwab NYSE: SCHW announced that they would be eliminating commissions on online trading for U.S. stocks, ETFs and options trades beginning on October 7. Shares of Schwab dropped nearly 10% on the news. However, shares of TD Ameritrade plummeted 25.8% which put the stock on track for its worst day since 1999.

In a press release, founder and chairman Charles Schwab said that the firm’s “passion has been to make investing easier and more affordable for everyone.”

Schwab says they hope to recover the lost revenue from fees with new assets. History suggests that may be the case. When the company lowered their commissions in February 2017, assets under management swelled from $2.92 trillion to $3.72 trillion.

The announcement by Schwab and TD Ameritrade come after, Interactive Brokers, J.P. Morgan Chase, and Vanguard have all announced some form of free trading. And all of these moves stem from Robinhood, the Silicon Valley startup, who offered free trading in 2013. Since that time, Charles Schwab stock has returned just 7.9% per year and TD Ameritrade has been below 5%. Both firms are well below the 11% annual return of the S&P 500.

“Free trading isn’t a new theme in the industry, but the cadence of announcements from firms offering zero-commission trades seems to be picking up, and we also note that many of these companies have more credible platforms than the offerings of the past,” said JMP Securities’ Devin Ryan in a message to clients in September.