Market Insider

Brokerage firms headed for an all-out 'price war,' analyst says

Online brokerage battle heats up
Online brokerage battle heats up

Shares of brokerages traded lower Tuesday after two major firms in the industry announced plans to cut trading commissions.

They're headed for a "price war," SunTrust analyst Doug Mewhirter told CNBC. "There's been pricing pressure for years, as things get more efficient," and there's a fear in the market today that as interest rates go up, he said, brokerages will face renewed pressure to keep fees lower. 

Lower commissions charged per trade per customer will result in smaller profits for the brokerage providers. 

On Tuesday morning Fidelity announced a cut to its base stock trading commission rate from $7.95 to $4.95 per trade. Charles Schwab then responded by matching Fidelity's rates, which are now the second-lowest of all publicly-traded e-brokers except Interactive Brokers, according to Nerdwallet.

Schwab has made two cuts in quick succession. At the beginning of February, the firm trimmed its commission rate to $6.95 per share. 

Following Tuesday's trimming news, shares of TD Ameritrade fell more 10 percent, while eTrade fell more than 8 percent, and Charles Schwab was down more than 4 percent in afternoon trade. 

With Tuesday's losses, TD Ameritrade and eTrade are trading in negative territory for the year, while Charles Schwab holds onto a little-more-than 1 percent gain.

Charles Schwab, eTrade and TD Ameritrade year-to-date 

Source: FactSet