There is nothing better in life than getting something free. Last week, we heard Schwab (SCHW) and other online brokers offering commission-free trading on stocks, options, futures and bonds. It's been a long time coming. These discount brokers really came of age over 20 years ago with their discounted trading, taking advantage of the bigger institutions' size and offering the customer a no-frills product.
These companies saw their stocks rip higher when they first cut prices. They attracted investors/traders of all types of wealth. Over the years, these brokers have become formidable foes of the big banks at picking up clients, but this new step of zero commissions is bold one.
It was enormously successful at the time, and discount firms like Ameritrade (AMTD) , E*TRADE (ETFC) , Interactive Brokers (IBKR) and Schwab picked off clients from the old wire houses like Goldman (GS) , Merrill, Bear Stearns and Morgan Stanley (MS) . With $9.99 per trade or less, customers traded more and raised more assets. This most recent move is interesting though, as it brings in another player that might have some benefit - The Cboe (CBOE) .
Chicago Board of Options has been around for many years and has created some innovative trading products. The most popular is the weekly option, which gives the customer an ability to speculate and hedge with time being an important consideration. The advent of these weeklies have become wildly popular among the option crowd and a great source of revenue for CBOE.
But commissions do cut into the customer's profits, so now with that removed we may see trading come alive even more with options. We could see a nice boom of trading volume in options that has been lacking in recent years, and an increase in market makers (which has also declined sharply). What the brokers are giving up, the CBOE and retail customer are bound to benefit from, hopefully better markets and trading as well.
