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Goldman Gets It Right 

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Traders aren't the only ones back on board with discount brokers.

Goldman Sachs upgraded shares of Charles Schwab (Nasdaq: SCHW  ) on Friday, encouraged by the favorable industry implications behind the Fed's move to bump up its discount rate.

That's a serious upgrade, because Goldman Sachs talked down the price targets of Schwab, E*TRADE (Nasdaq: ETFC  ) , TD AMERITRADE (Nasdaq: AMTD  ) , TradeStation (Nasdaq: TRAD  ) , and optionsXpress (Nasdaq: OXPS  ) just two months ago.

The Wall Street loving doesn't end there. Keefe, Bruyette & Woods initiated coverage of E*TRADE on Monday. Sure, the assessment is a ho-hum "market perform" rating. The 12-month price target of $1.70 is just three nickels away. However, it sure beats the naysayers who figured the E*TRADE Baby wouldn't reach toddlerhood just a couple of years ago.

Banking on the discounters became a whole lot easier when trading activity picked up last month. E*TRADE, TD AMERITRADE, Schwab, and Interactive Brokers (Nasdaq: IBKR  ) experienced huge sequential spikes in daily average revenue trades last month -- up 21%, 22%, 23%, and 24%, respectively.

Even if that activity ultimately came from frustrated longs cashing out during a disappointing January, the seeds are in place for brisk trading activity in the near term. Investors will now have to see whether recent cuts in commissions translate into shrinking margins for the discounters, or whether they can make up the shortfall through volume.

Now that analysts appear to be warming up to the industry's apparent bottoming-out, it appears the fears of price wars and the impact of low interest rates may have been overblown.

Trade on, discounters.

In the market for a new discount broker? The way that rates and initial deposits are bouncing around, I can't say that I blame you. Check the sponsored broker comparison table in the Discount Broker Center to see if you can find the bargain-minded brokerage that's right for you.

optionsXpress, Interactive Brokers, and Charles Schwab are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services free for 30 days.


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Rick Munarriz
TMFBreakerRick

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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