The online brokerage industry has been in what analysts describe as an "all out" price war this year. But in the race to zero, there is already a clear winner: Robinhood, a zero-commission stock-trading app. Baiju Bhatt and Vlad Tenev, former classmates at Stanford University, founded two start-ups selling trading software to hedge funds. Now they are having success selling to investors pretty far down from Wall Street's 0. The fee slashing has already hit stocks of online brokerage companies.
Schwab then responded by matching Fidelity's rates. Even as the markets surged this year, stocks of online brokers haven't boomed.
E-Trade Financial has managed a small gain, while TD Ameritrade is down more than 12 percent and Interactive Brokers is down more than 4 percent. One of the things brokers lowering their fees may not want investors to know is that there may already be better options, especially for investors who decide based on fees alone. The price war would not be occurring without the huge move by investors into low-cost, exchange-traded funds, which can be bought and sold throughout the day.
Traditional financial companies, such as the Vanguard Group, do offer free trading on their platform when investors are buying their proprietary products, such as ETFs, and for select client groups.
One of the reasons Robinhood is able to charge a zero commission is its lack of brick-and-mortar locations. It is also attracting more, sophisticated investors through Robinhood Gold, a premium paid service that offers margin and extended-hours trading.
Other financial start-ups are moving into that area as well: Wealthfront recently launched a service allowing its clients to borrow against their portfolios. Financial professionals have expressed concern about the endless fee war encouraging investors to trade more than is wise or necessary, as well as about the move to margin lending as a sign of an overheated stock market. These start-ups are on the cutting edge of big consumer and business shifts — and already worth billions.
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See them all Methodology. The race to zero in endless online brokerage-fee war already has been won Robinhood has 2 million users for its free stock-trading platform. An all-out price war among online brokers has led giants such as Fidelity and Schwab to cut trading fees by near percent. As iPhones get smarter, some consumers will pay premium for the 'dumb' model. Japanese start-up taps into space boom with Airbnb service for satellites. Ending the utility as we know and hate it.
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