Stock and ETF brokerage costs plunge

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ochotona
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Stock and ETF brokerage costs plunge

Post by ochotona » Wed Oct 02, 2019 5:45 am

Firms offering no commissions on trading:

Charles Schwab (announced 10/1/19)
TD Ameritrade (announced 10/2/19, effective 10/3/19)
Interactive Brokers (the IBKR-Lite tier)

Who's next?

This is a boon to anyone desiring to do a DIY stock portfolio consisting of dozens or scores of stocks. However, they still make money off of you. They sell your orders to third party trading desks - high-frequency traders - who make profits by front-running your orders. Then they pay the brokers a sales commission.

I'm going to embark on a long-term experiment wherein I will move assets to Interactive Broker's full platform, which does not sell your orders but instead you pay a trading commission. I'll do side-by-side trades in IBKR and Schwab, and report the results back over time. It will take months, I won't be able to fund IBKR until early November.
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Re: Stock and ETF brokerage costs plunge

Post by dualstow » Wed Oct 02, 2019 7:52 am

Pasting from the Left Eating Itself thread:
pugchief wrote:
Tue Oct 01, 2019 5:41 pm
dualstow wrote: (signature)Breaking: Schwab to end trading commissions
Great news for everyone except people who own Schwab stock.
(dual.) O0 true! Or stock in similar firms. They fell, broadly.
sophie wrote:
Wed Oct 02, 2019 7:30 am
Just got an email that TD Ameritrade is also eliminating all commissions on stocks and ETFs.

C'mon Fidelity...give!!!!!!
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Re: Stock and ETF brokerage costs plunge

Post by Kbg » Wed Oct 02, 2019 8:43 am

ochotona wrote:
Wed Oct 02, 2019 5:45 am
Firms offering no commissions on trading:

Charles Schwab (announced 10/1/19)
TD Ameritrade (announced 10/2/19, effective 10/3/19)
Interactive Brokers (the IBKR-Lite tier)

Who's next?

This is a boon to anyone desiring to do a DIY stock portfolio consisting of dozens or scores of stocks. However, they still make money off of you. They sell your orders to third party trading desks - high-frequency traders - who make profits by front-running your orders. Then they pay the brokers a sales commission.

I'm going to embark on a long-term experiment wherein I will move assets to Interactive Broker's full platform, which does not sell your orders but instead you pay a trading commission. I'll do side-by-side trades in IBKR and Schwab, and report the results back over time. It will take months, I won't be able to fund IBKR until early November.
Awesome! Look forward to your analysis.
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Re: Stock and ETF brokerage costs plunge

Post by Kriegsspiel » Wed Oct 02, 2019 4:36 pm

dualstow wrote:
Wed Oct 02, 2019 7:52 am
sophie wrote:
Wed Oct 02, 2019 7:30 am
Just got an email that TD Ameritrade is also eliminating all commissions on stocks and ETFs.

C'mon Fidelity...give!!!!!!
Cool. It sucked when they took the Vanguard ETFs off their commission-free list. Although I guess it doesn't matter to me if I get around to moving my HSA to Fidelity.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Fri Oct 04, 2019 4:49 pm

More today from Paul Novell. Maybe I don't need to test out IBKR. It is darned convenient to have most of my stuff at Schwab. To place MOC orders at Schwab, you need to use Street Smart Edge trading platform. Can't do it from the web or mobile.

"One comment this week on developments in the discount broker space. If you haven't heard by now, you can trade stocks, options, and ETFs for free now at a lot places, even at the big boys; Vanguard, Schwab, Interactive Brokers, and TD Ameritrade now offer $0 commissions. It's a great development for investors, especially TAA and quant investors. With this development there has been some renewed concern of brokers selling order flow to make money. Yep, that happens. But I wanted to point out a few things; it is not a slam dunk argument that it is bad for small investors (see this thread), and most importantly you can avoid any concerns by using market on close (MOC) orders as I advocate doing anyway. With MOC orders your orders get executed at the NYSE, there's no dark pool shenanigans, and you get the closing price, without any bid/ask spread. And now with zero commissions. What's not to love about that?

As always, send any questions or comments my way.

Regards,

Paul"
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Re: Stock and ETF brokerage costs plunge

Post by dualstow » Fri Oct 04, 2019 5:48 pm

Mentioned in the Wall St Journal today: Schwab and other brokerages will still make money off you from poor-yielding sweep accounts holding your uninvested cash.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Fri Oct 04, 2019 6:53 pm

dualstow wrote:
Fri Oct 04, 2019 5:48 pm
Mentioned in the Wall St Journal today: Schwab and other brokerages will still make money off you from poor-yielding sweep accounts holding your uninvested cash.
They absolutely do. You need to put it somewhere.
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Re: Stock and ETF brokerage costs plunge

Post by KevinW » Tue Oct 08, 2019 9:34 pm

IMO this is a great trend for retail investors.

As a 4x25 PP investor who rebalances annually, commissions have always been a minor consideration, and payments for my order flow are an extremely tiny consideration. Cash is commission-free so I'm only making a maximum of 3 trades per account per year, and in practice usually 0-1 trades per account per year. The order flow thing seems like more of a problem for day traders.

Does anyone think one of these brokers has become the slam-dunk best for PP investors?
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Wed Oct 09, 2019 5:11 pm

ochotona wrote:
Fri Oct 04, 2019 4:49 pm
More today from Paul Novell... you can avoid any concerns by using market on close (MOC) orders as I advocate doing anyway. With MOC orders your orders get executed at the NYSE, there's no dark pool shenanigans, and you get the closing price, without any bid/ask spread. And now with zero commissions. What's not to love about that?
I placed an MOC sell order today, and I absolutely got the closing prices today, down to the penny. No bid/ask spread. But... the fractional shares did not sell! So now I have some orphaned fractions, I have to buy 1 whole share of each ticker, wait two days for it to settle, then sell. In future, I won't sell my last whole share, I'll sell so I have 1.xxx left over, then clean up the next day.

Also, I placed simultaneous buy & sell orders, but my buy order was only 98% as big as my sell order, so as to avoid a sudden price move at the close resulting in me getting jammed up with a negative cash balance and a trading violation. Again, I can do next-day clean-up and soak up left-over cash. But it's fine for me to avoid 98% of the payment for order flow PFOF nonsense. I might even be able to cut it closer, but 98% is OK. I figure it's very unlikely that each symbol moves against me by 1% in the last minutes of the day.

I placed the trades at Schwab on their trading platform Street Smart Edge, but Fidelity lets you do it on their regular website.
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Re: Stock and ETF brokerage costs plunge

Post by Kbg » Wed Oct 09, 2019 11:11 pm

KevinW wrote:
Tue Oct 08, 2019 9:34 pm
IMO this is a great trend for retail investors.

As a 4x25 PP investor who rebalances annually, commissions have always been a minor consideration, and payments for my order flow are an extremely tiny consideration. Cash is commission-free so I'm only making a maximum of 3 trades per account per year, and in practice usually 0-1 trades per account per year. The order flow thing seems like more of a problem for day traders.

Does anyone think one of these brokers has become the slam-dunk best for PP investors?
Payment for order flow should be **the** consideration if you have a larger account.

It’s kinda like when you go to a car dealer for repairs and you think the Coke and pastries in the waiting area are “free.”
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Thu Oct 10, 2019 6:45 pm

Fidelity... Now zero commissions!
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Re: Stock and ETF brokerage costs plunge

Post by pugchief » Thu Oct 10, 2019 8:09 pm

ochotona wrote:
Wed Oct 09, 2019 5:11 pm
ochotona wrote:
Fri Oct 04, 2019 4:49 pm
More today from Paul Novell... you can avoid any concerns by using market on close (MOC) orders as I advocate doing anyway. With MOC orders your orders get executed at the NYSE, there's no dark pool shenanigans, and you get the closing price, without any bid/ask spread. And now with zero commissions. What's not to love about that?
I placed an MOC sell order today, and I absolutely got the closing prices today, down to the penny. No bid/ask spread. But... the fractional shares did not sell! So now I have some orphaned fractions, I have to buy 1 whole share of each ticker, wait two days for it to settle, then sell. In future, I won't sell my last whole share, I'll sell so I have 1.xxx left over, then clean up the next day.

Also, I placed simultaneous buy & sell orders, but my buy order was only 98% as big as my sell order, so as to avoid a sudden price move at the close resulting in me getting jammed up with a negative cash balance and a trading violation. Again, I can do next-day clean-up and soak up left-over cash. But it's fine for me to avoid 98% of the payment for order flow PFOF nonsense. I might even be able to cut it closer, but 98% is OK. I figure it's very unlikely that each symbol moves against me by 1% in the last minutes of the day.

I placed the trades at Schwab on their trading platform Street Smart Edge, but Fidelity lets you do it on their regular website.
I'm pretty sure if you sell all of your shares, the fractional ones will settle at the same price in a couple of days. Chat with a Schwab rep to clarify, but that has always been the case for me at all brokers.

I'm also pretty sure Schwab offers MOC orders on their regular platform.
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Re: Stock and ETF brokerage costs plunge

Post by Tyler » Thu Oct 10, 2019 8:33 pm

ochotona wrote:
Thu Oct 10, 2019 6:45 pm
Fidelity... Now zero commissions!
Boom! I'm really happy to see that. And really glad that I wasn't tempted to switch funds recently just because they didn't have commissions. Being slow to make changes paid off. 8)

I imagine that BlackRock probably got a lot of business through Fidelity because they had a deal to not change commissions on iShares ETFs. Now that the playing field is leveling, I wonder if this will eventually force them to also lower their ER's to be more competitive with some of the other ETF providers like Schwab.

Gotta love competition.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Fri Oct 11, 2019 6:01 am

Double checked, no MOC on regular Schwab website. Also, there was a bug which caused the fractional shares to not trade, they took care of them for me by hand the next day, at the same price. Not great, but whatever.
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Re: Stock and ETF brokerage costs plunge

Post by InsuranceGuy » Fri Oct 11, 2019 11:18 pm

Fidelity seems to be winning on this front given that they already had $0 commissions for 500+ ETFs. Plus Fidelity doesn't sell your order flow to the highest bidder, Schwab made $130m+ by selling order flow last year.

https://www.cnbc.com/2019/10/11/fidelit ... -fees.html

Lastly, Fidelity and Vanguard both offer cash sweep options of 1.5%+ while Schwab, TD Ameritrade, and E-Trade pay <0.2%.
Last edited by InsuranceGuy on Sat Oct 12, 2019 8:30 am, edited 1 time in total.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Sat Oct 12, 2019 7:43 am

1.4 cents per share ding. That sucks. Glad I found out how to do MOC. The cash thing sucks.
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Re: Stock and ETF brokerage costs plunge

Post by InsuranceGuy » Sat Oct 12, 2019 10:15 am

Fidelity has been fairly transparent on what the difference in executed price vs bid(sell)/ask(buy) price is for each trade. My own trade history is spread across various brokerage/IRA/401k accounts with holdings varying from $50k to $600k. The average price improvement is $5.80/trade over 11 trades in the past 12 months.

Given that trading costs have been pretty low before this change ($5-$10) many brokerages can make nearly all of this fee income back by selling their order flow unless they were double dipping to begin with.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Sat Oct 12, 2019 11:07 am

InsuranceGuy wrote:
Sat Oct 12, 2019 10:15 am
The average price improvement is $5.80/trade over 11 trades in the past 12 months.
What does it work out to on a per share basis? Anything like 1.4 cents per share?

Everyone going to zero commissions really starts putting the focus on smaller and smaller and finer and finer points about order flow, customer service, online user experience, do you like the cookies & coffee they serve in the local branches, etc. Here's a summary of the war in my brain. I don't know what to do. Maybe move my two actively traded accounts to Fidelity, and leave the quiet ones at Schwab. $25 hostage fee.

Screenshot 2019-10-12 at 11.31.43 AM.png
Screenshot 2019-10-12 at 11.31.43 AM.png (72.87 KiB) Viewed 8245 times
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Re: Stock and ETF brokerage costs plunge

Post by InsuranceGuy » Sat Oct 12, 2019 11:38 am

ochotona wrote:
Sat Oct 12, 2019 11:07 am
What does it work out to on a per share basis? Anything like 1.4 cents per share?
It took me a few minutes to download my history, but it is 0.6 cents per share.

I do agree that we are starting to talk about nickel and dimes and not huge dollars, my point was only that in many cases for an average investor can be the similar to previous trading commission costs.

EDIT: Nice comparison chart. From my perspective: I have never been to a branch so never had a cookie (that may change now that I know), the Fidelity website seems to work well for me, I agree on the 2% Fidelity card and personally use the Alliant CU cash back card that has no ATM/foreign trans fees. I have no vested interest in any of the brokerage houses, I use Fidelity and have used E-Trade, Merrill, Schwab, and Vanguard in the past.
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Re: Stock and ETF brokerage costs plunge

Post by pugchief » Sat Oct 12, 2019 1:21 pm

ochotona wrote:
Sat Oct 12, 2019 11:07 am
InsuranceGuy wrote:
Sat Oct 12, 2019 10:15 am
The average price improvement is $5.80/trade over 11 trades in the past 12 months.
What does it work out to on a per share basis? Anything like 1.4 cents per share?

Everyone going to zero commissions really starts putting the focus on smaller and smaller and finer and finer points about order flow, customer service, online user experience, do you like the cookies & coffee they serve in the local branches, etc. Here's a summary of the war in my brain. I don't know what to do. Maybe move my two actively traded accounts to Fidelity, and leave the quiet ones at Schwab. $25 hostage fee.


Screenshot 2019-10-12 at 11.31.43 AM.png
1. Depending on how much cash you keep in your sweep account, you can make back that $25 from the interest differential in short order.
2. If you are moving enough assets, Fidelity may reimburse any exit fees. Doesn't hurt to ask. I recently had a $75 account closing fee at e*trade reimbursed by Merrill Edge as part of the deal.
3. You can often score huge cash bonuses when moving larger sums: current offers
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Sat Oct 12, 2019 1:27 pm

InsuranceGuy wrote:
Sat Oct 12, 2019 11:38 am
EDIT: Nice comparison chart. From my perspective: I have never been to a branch so never had a cookie (that may change now that I know), the Fidelity website seems to work well for me, I agree on the 2% Fidelity card and personally use the Alliant CU cash back card that has no ATM/foreign trans fees. I have no vested interest in any of the brokerage houses, I use Fidelity and have used E-Trade, Merrill, Schwab, and Vanguard in the past.
So the momentum strategies I use in my VP have 2.5 trades per year on average. This would imply that Schwab makes from me, on average, about $770 per year in lost price improvements. If I run around that by sending 99% of the trades through MOC, and do next-day clean-up with regular market buy orders (I sell an ETF using MOC, but only buy 98% of the replacement ETF using MOC so as not to run out of cash), they're down to 1% of that, or $7.70 per year. I can live with that. Even if it's 1.4c per share not 0.6c per share, that's $18 per year.

But I still might move!
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Re: Stock and ETF brokerage costs plunge

Post by thisisallen » Sat Oct 12, 2019 10:34 pm

Fidelity will reimburse the fee that another brokerage may charge you to transfer funds to Fidelity. Just need to show Fidelity your statement from the other company confirming the fee/charge.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Sun Oct 13, 2019 5:30 am

thisisallen wrote:
Sat Oct 12, 2019 10:34 pm
Fidelity will reimburse the fee that another brokerage may charge you to transfer funds to Fidelity. Just need to show Fidelity your statement from the other company confirming the fee/charge.
Where do present the statement? Online or at a branch?
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Re: Stock and ETF brokerage costs plunge

Post by sophie » Sun Oct 13, 2019 9:37 am

I don't have a Schwab account so I can't speak to that brokerage's features in this area, but a few additions to the Fidelity positive list:

1) A cash account with an ATM card where you are reimbursed for all ATM fees. (disadvantage: the sweep pays almost zero interest, but on the other hand it is FDIC insured for a ridiculously large amount, like $600K).

2) A brokerage account that can be firewalled from long-term investments and that can do everything that a normal online checking account does except for ATM withdrawals - and you can set the sweep to a money market fund. Pairs well with the cash account. Elegantly gets around rules limiting savings account transactions that force you into a dual bank account structure.

3) An completely-investible HSA that neatly avoids having to deal with two institutions, logins etc.

Their website software is the one real negative of Fidelity. Glitches are common and it is often awkward to use. I hope they are planning to update it.
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Re: Stock and ETF brokerage costs plunge

Post by ochotona » Sun Oct 13, 2019 10:17 am

Agree completely on the Fidelity website. It's green and mean.
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