Investors hammered shares of online brokers this month after Charles Schwab escalated the industry's ongoing price war by scrapping more of its trading fees, all to the benefit of regular investors.
Charles Schwab is betting the decision to lower or eliminate trading fees will help it attract customers, who've grown more vocal about the cost of investing.
"It's the right move from a competitive standpoint," said Peter Crawford, Charles Schwab's chief financial officer, in a statement. "There has been a clear pause in the so-called commission wars among the 'traditional' e-brokers since the price reductions we made in 2017."
Brokers make most of their money via interest income on their clients' deposits, but fees and commissions account for a big share of their earnings also.
Charles Schwab's commission and fee income fell last year. It relies less on commissions and fees than its rivals, so it can better withstand the price war's effects.
Although they rely more on commissions, TD Ameritrade and ETrade Financial quickly followed Schwab's lead with cuts of their own, alarming investors.
Fidelity Investments, the largest online brokerage, joined them on Thursday and said it is dropping commissions for online trades of U.S. stocks, ETFs and options. Fidelity is privately held.
Charles Schwab expects the move to cut up to 4% of its revenue, while TD Ameritrade expects a much harsher impact with up to 16% of its revenue slashed.
