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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

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