$500! $300! $59.99! $29.95! $10.99! $5!
There's a rumble in the financial jungle going on, Fools. Discount brokers left and right are bidding against each other in an auction to purchase your trading loyalty. And the best part (assuming you don't own stock in the brokers) is that all the prices are being bid down, not up.
Last month, fellow Fool Rick Munarriz wrote about Ameritrade's (NASDAQ:AMTD) plan to begin wooing clients away from its competitors with the $5 Stock Trades offer at its trial IZone brokerage service. Last week, two of those competitors fired back with price cuts of their own -- not as steep as Ameritrade's, granted, but significant in their own right. Fidelity caved first, slashing the price of its mid-tier pricing plan, the "Silver Commission Level," by 25% in an effort to woo, one suspects, investors who are wealthy enough to be worth wooing -- but not so wealthy as to pass up a $4 price cut. A moderately active trader who places $30,000 in Fidelity's hands can now trade to his or her heart's desire at $11 a pop. And a true Fool, who trades only a few times a year, can snag the same deal by placing $100,000 with Fidelity.
On Friday, Schwab (NYSE:SCH) jumped on the discount bandwagon, slashing its commission (which, incidentally, it had already done once or twice last year) by a further 35% to just $13. (What's that? "Investor Relations" is on the line and says the price is $12.95, not "$13"? Sorry, guys -- $12.95 is $13. Get over it.)
Both of those price cuts should suffice to put Fidelity and Schwab in contention with the rest of the discount broker pack. Toronto-Dominion's (NYSE:TD) TD Waterhouse still wants $12 to help you trade online. E*Trade (NYSE:ET) wants $13. Bank of Montreal (NYSE:BMO) subsidiary Harris Direct will shave a couple bucks off those rates if you place buys and sells like a caffeine addict on a perma-Starbucks buzz -- or add a couple bucks if you're too slow.
The upshot is that all of these companies are converging around a common price point: $10 plus a little. The premium services may stem their customer turnover by making this kind of move, but win over new market share? Not likely.
True cheapo traders (like your Fool-y), will still seek out cheaper alternatives. JPMorgan's (NYSE:JPM) Brownco charges $5 if you're happy to place market orders. Ameritrade's own freetrade.com subsidiary charges nothing (figure the economics of that one out).
In other words, investors in the discount brokers shouldn't think the worst part of this price war is over. There's still room down in the cellar -- the only question remaining is which of the "name" brands will start down the stairs first.
Fool contributor Rich Smith has no position in any of the companies mentioned here. Caveats: He does maintain brokerage accounts with Ameritrade and Freetrade.com, and Schwab is a recommendation of the Motley Fool Stock Advisor .
