This morning I received an email from TD Ameritrade announcing that they will be introducing commission-free trades! If you are a regular follower on Squintillions, you already know that I am a cheerleader for TD Ameritrade. I have my IRA and a Trust account at TD Ameritrade, as well as Custodial accounts for each of my two sons. TD Ameritrade has the best resources for learning about investments that I have seen. My experience with TD Ameritrade customer service has been excellent. I’m constantly recommending the company to people who are looking to open a brokerage account. I’m pretty excited about this news!
Source: TD Ameritrade email
The email announcement that account holders received reads:
The investing and trading experience you know and love is getting even better. Starting on October 3, you’ll also enjoy:
– $0 commission on online equity trades
(exchange-listed U.S. stocks)– $0 commission on online ETF trades
(domestic and Canadian)Source: TD Ameritrade email
– $0 commission on online option trades
(Contract fees now only $0.65, plus no assignment or exercise fees.)
The change to zero commissions comes with zero change to the level of service you’ve come to expect. You still get unlimited free access to our best-in-class trading platforms. Plus, you get award-winning service and education, and an extensive branch network. See, who says you can’t get something for nothing?
The news came so quickly on the heels of Charles Schwab’s announcement yesterday (October 1, 2019) that they are eliminating commission fees on stocks, ETFs, and options, that it seems that TD Ameritrade already had their plans on the launch pad, waiting for the perfect launch window. Competition from growing companies with investment apps that offer commission fee trading, such as Robinhood and M1 Finance surely played a role in these decisions.
With the news from Schwab, brokerage stock prices declined, with TD Ameritrade (AMTD) dropping nearly 26% and the other brokerage I use, E*Trade (ETFC), dropping about 16%. (I’ve got my fingers crossed that E*Trade will cut their commission fees too.) How this move will play out for those companies as time passes remains to be seen, but we know that they have made a significant amount of revenue from these fees in the past. Presumably they will move the focus of revenue to other areas of the business, such as interest on margin. I expect the companies will experience some volatility in stock price over the upcoming months as they work through their new game plan.
EDIT: The day after I posted this, E*Trade announced they were switching to commission-free trades too. The following week, Fidelity shared their plan to offer commission-free trades.
As an account holder, I am happy about this news because it allows greater flexibility in my buying choices. It removes the commission fee from the buying decision making process, particularly where in the past, TD Ameritrade already had some of their ETFs listed as commission free. If I was looking at choices to buy, sometimes I would puzzle over if I wanted to get the commission free fund or pay the commission on a different fund that might have been fairly similar or even slightly better at meeting my criteria. It will also allow me to feel comfortable buying smaller lots of shares. For example, if I earn a couple hundred dollars from dividends that I don’t have enrolled in a DRIP, I can happily invest those dollars into a different investment and buy fewer than 10 shares and not be paying about a 10% fee for the privilege of doing so, as would have been the case in the past. I have also had a tendency to buy as many shares as I could afford of an investment choice in one purchase to avoid having to pay a commission fee a second time. This is great news for investors who like to use the dollar cost averaging strategy.
As a buy and hold investor, having free commissions will not matter as much for me on the selling side. Sure, there are some stocks that I am holding on to that were purchased back when I had a financial advisor where I don’t want to continue to follow those companies or be invested in them. I am holding on to the stocks though, as I wait for a good moment to sell. The fact that there would have been a commission fee charged on the sale isn’t what has kept me from selling. Some were bought at a relatively high share price and I’m not seeing a good exit point since their prices dropped along with the market at the end of 2018, but haven’t recovered as quickly, and I am not in any monetary hurry to sell the companies. With the removal of these fees, I can see how TD Ameritrade will now be a much more attractive brokerage to use for day traders (which I don’t do at all) or short-term investors. It certainly offers a far more robust platform than Robinhood.
For full disclosure, I took the opportunity at the big drop in the share price to open a position in TD Ameritrade, buying 50 shares of AMTD this morning for my TD Ameritrade Trust account. I opened that account earlier this year and have written a few posts about how I am investing there, with a focus on dividend ETFs. Amusingly, that may be the last commission fee I will pay to TD Ameritrade! I’ll be keeping an eye on the share price over the next few days and if it dips down even more, I might add to that position and I’ll have no second thoughts on adding less than 10 shares at a time once it is commission free!