Ameritrade (NASDAQ:AMTD) knows it's involved in a long-term war. It has no choice but to continue tweaking its service offerings to stay in the game. The same goes for all brokers, including E*Trade (NYSE:ET) and Charles Schwab (NYSE:SCH). This week brings some new reports from the front.
Reportedly, Ameritrade intends to make its options brokering more fee-friendly. Instead of paying $1.50 in addition to the normal transaction cost, traders will only have to shell out half that amount. In addition, the company issued a press release promoting a new scheme for its Ameritrade Apex initiative, a program that serves clients who trade frequently by supplying applications needed to gauge short-term market/equities trends. You can check the release to get all the details, but the main qualification is executing an average of five trades per month for every three-month time frame (previously, a client had to double that amount).
If you're reading this, chances are you're an investor, and a happy one at that -- because it means that, as the timeline flows on, whatever commission you are paying is most likely going to decrease, even if you aren't an active trader. Granted, these changes had nothing to do with Ameritrade's current commission value per se, but that's what I take away from such an announcement. This struggle among all the brokers almost has no choice but to lead in this direction (although we may not see five-dollar schedules across the board just yet).
If you happen to have holdings in any of the stocks related to this sector, you might see it as a double-edged sword: While new assets might be attracted to, say, Ameritrade as a result of this move, there's not necessarily a guarantee that trading volume will rise; that tends to be a function of market direction. Also, just in terms of the math involved, I speculate that a more trader-friendly set of terms may mean that new accounts will have to jump significantly to make the promotion worthwhile if traders lessen their activities in response to the easier terms (less-frequent investors suddenly increasing their market action might make it merely a wash).
It doesn't matter, though, because the company is doing what it needs to be doing to compete effectively. And the more accounts Ameritrade can open -- hopefully margin ones -- the better, because even if trading volume decreases, it'll be ready for the next run-up in the indexes. Foolish investors should remember that what is good for Ameritrade is certainly not good for the Foolish investor; take the little margin comment I just made. Sure, margin accounts bring in extra revenues for brokers due to the interest collected, but I recommend that anyone reading this resist borrowing to purchase equities. Plus, I personally would be hesitant to lock myself into any frequent-trader schedule; I don't like anyone dictating the number of trades I need to make in any given time (that could lead to some bad decisions). There are a lot of sophisticated investors who can handle many buys and sells over a short time and can read an options chain like nobody's business, but I'd advise cautious consideration before becoming a Jim Cramer if you're not there yet.
The Motley Fool doesn't condone frequent trading as a general rule, but as someone once said, humans will always harbor a desire to trade with one another -- it's ingrained in the species. Whether it be action figures, baseball cards, or stocks, the need to buy and sell is a constant presence in our emotional centers. Ameritrade should enhance its brand equity by making trading tools and options more economically viable to the experienced investor. As for me, I'm just waiting for my commission to be reduced.
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Fool contributor Steven Mallas owns none of the companies mentioned.
