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"You Get Commission-Free Trades. And You Get Commission-Free Trades."


Maybe the Federal Reserve is looking at stock brokerage commissions when they say they can't find inflation. That's because brokerages are now in the midst of going tit-for-tat with each other to offer commission-free trading.


You have to go all the way back to 2013, when fintech startup Robinhood shocked the investment world with its "free" stock trading service. The company, whose founders previously built high-frequency trading platforms, has grown exponentially ever since. It hasn't come without controversy, though. Ironically, the company named Robinhood, gets half of its revenue from selling customer's order information to high-frequency trading firms.


Following years of Robinhood attracting millennials, the largest brokerages are finally giving in and slashing commissions to zero. It all started last week when Interactive Brokers announced IBKR Lite, which includes zero commissions on stocks and ETFs, will launch this month. The news caused shares of major brokerages TD Ameritrade, Charles Schwab and E-Trade Financial to fall.


Fast forward to yesterday, when the commission wars heated up even further. Before the opening bell, Charles Schwab announced it too would be cutting commissions on stocks, ETFs and options to zero. Just like last week, the news caused shares of major brokerages to plummet. TD Ameritrade fell 25%, its worst day since 2009, with E-Trade falling 16% and Charles Schwab falling 10%. With 7% of Charles Schwab's revenues coming from commissions, they anticipate the loss in revenues will be offset through increased assets under management, as was the case in 2017 when they lowered fees.


Then, after the bell yesterday, TD Ameritrade had no choice but to announce it would be cutting commissions on stocks and ETFs to zero, while still charging for options trades. This will cause a bigger hit to TD Ameritrade, though, as about 25% of their annual revenues come from commissions. The company estimates the move will cost them between $220 million and $240 million per quarter.


So with the major brokerages rushing to offer commission-free trading, it likely won't be long before Fidelity and E-Trade follow suit. We can't help but wonder what the next logical step is after commission-free trading. Given you can get paid to take out a mortgage in Denmark, it may not be long before brokerages are paying you to buy stocks. After all, with insider selling expected to hit the highest level since 2000 this year, someone has to buy the shares executives are rushing to dump on the public.


Leftover Crumbs

  • It's probably nothing. The ISM's U.S. manufacturing purchasing managers’ index came in at 47.8% in September, its lowest reading since June 2009. This is the second-consecutive month the ISM number showed a contracting manufacturing sector. A reading above 50 indicates expansion, while a reading below 50 indicates contraction in the manufacturing sector. The data was ugly across the board, with new orders, backlog, raw materials, inventories, exports and imports all contracting. The stock market quickly fell following the report as investors fear a recession may be on the horizon.

  • Facebook who? Visa, Mastercard and other financial partners are reportedly having second thoughts about their involvement in Facebook's Libra payments network. With worries about potential regulatory scrutiny, executives of the companies who originally signed on to help Facebook launch its cryptocurrency have even gone as far as declining Facebook’s requests to publicly support the project. Facebook originally announced the project would launch in June 2020, but has received intense blowback ever since. France and Germany have said they would block Libra, while members of Congress grilled the Facebook executive in charge of the project about the company's previous data mishaps. Even Federal Reserve Chairman Jerome Powell said he had "serious concerns" about the project. However, it's not surprising so many don't trust Facebook with their financial transactions.

  • You've got mail. UPS disclosed that it is now the first company to be able to operate a fleet of drones for delivery after receiving the Federal Aviation Administration's Part 135 Standard certification. UPS received the approval last Friday and said it immediately made a delivery via drone to a hospital in Raleigh, N.C. The certification allows UPS to fly at night and carry cargo weighing more than 55 pounds. "This is history in the making, and we aren’t done yet. When the regulations are complete we certainly believe there are residential opportunities" said UPS CEO David Abney.

  • Time to disrupt IPOs? Following a slew of poor IPOs, private company executives and venture capitalists will meet next week in Silicon Valley to discuss whether the process still works and if there's better alternatives. One alternative is a direct listing, where employees and investors convert their ownership into shares that are listed on the exchange, instead of raising new outside capital as in an IPO. This method was recently used by high profile tech companies Spotify and Slack, which are now -32% and -41%, respectively, from their opening prices. As for next week's meeting, Bill Gurley, one of the meeting's organizers, said "investment bankers, for the most part, are not invited."

  • This could be a hit on Wall Street. WhatsApp is supposedly testing a self-destructing message feature, according to a Twitter user who was going through the code in a beta version of the app. The ability to have messages self-destruct after a set period of time is a popular feature on Telegram, which is the 8th-most popular messaging app in the world. It's unclear if WhatsApp, which is owned by Facebook, will implement this feature for all of its users.