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Online brokerage firms lowering and increasing commissions in 2012
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In the last 10-15 years, online investing and trading has seen a huge rise in the number of companies offering these services and it became one of
the most competitive financial services industries. There are over 50 discount brokerages on the market right now, with a few new firms
appearing every year.
It's no wonder that in this competitive environment the price war broke down in 2010-2011. Etrade cut their commissions to $10 per trade. Fidelity
made even more drastic cut: now it costs just $7.95 to buy securities at the firm. Merrill Lynch's new reincarnation, Merrill Edge,
cut their rates to just $8.95 per trade or less - far cry from what the parent company charged a couple of years ago! OptionsXpress was
bought by Charles Schwab and lowered its commissions down to $8.95.
But there is also another interesting dynamic: at the same time when larger firms where cutting their commissions, some smaller,
newer and cheaper online brokers were actively raising them! Optionshouse increased their rates from $2.95 to $3.95 per trade (but in the classy
move it left old rates for existing customers). Zecco gave up free trades altogether (which prompted a lot of customers to leave the firm)
and now charges $4.95 per trade with $2 surcharge for penny stocks. Lighspeed Trading increased it's commissions too.
It looks like there is a trend of converging prices in online investing: larger, better known and more expensive firms are cutting their
rates to be more competitive with newer companies. And smaller, less known brokers has been raising their commissions. It's not clear why the smaller firms are increasing rates:
is it because they feel comfortable to do it or because they have to do it to keep up with expenses?
We believe that this trend will continue in 2012. As technology and investment in development enables new firms to offer the same or similar services as
older brokerage houses at the fraction of the cost, it will force older companies to lower their rates. This, of course, is a great news to
consumers.
As to trend of cheaper brokers increasing their pricing, we think it will be limited. Very few firms will be able to effectively compete with
other low-price newcomers and at the same time with the established older firms to the point, when they will be able to raise their prices.
Most of these companies sooner or later will be acquired by the bigger firms vary of more dynamic and cheaper competitors.
Related article: Best online brokers in 2012
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