Yesterday, Wednesday, October 12th, Bank of America Corporation (BAC) blindsided all of the online brokers (TD Ameritrade (AMTD), E*Trade (ET), Charles Schwab (SCHW)) and their mothers with this bomb: 30 Free Online Trades each month for customers with at least $25,000 in deposits or other accounts at Bank of America! Other brokerages have tried the free trading plan before, but Bank of America’s unexpected jump into offering online trading is a force to be reckond with as Bank of America is the nation’s #2 bank.

A Little Background
For all you who are new to investing and trading, online brokers act like other investment or stock brokers in that they allow you to buy and sell stocks or mutual funds. Rather than calling your broker and putting in your orders over the phone (and having them charge a fee for talking to a person as well as for the transaction), online brokers let you buy and sell just by clicking your mouse. You should know that TD Ameritrade does allow you to talk and consult with real people at local branches. With online brokers, you can buy and sell stock a lot faster. For a lot of people now, it lets them do the so called daytrading or swing trading where they buy and sell quickly and try to make a few bucks here and there.

TD Ameritrade (which is the online broker I currently use) tried to offer free trading but ended up with the $9.99 flat rate for all trades. This Monday, October 9th, Zecco.com, a small startup brokerage started offering 40 free trades per month with no other conditions. While smaller sites like Zecco.com and some others who have lower rates than $9.99 have done little to dethrone TD Ameritrade, E*Trade, and Schwabb, it was because these start-up companies do not have the presence and business dominance of Bank of America.
Along comes Bank of America now to change the online trading scene, and they will too.

I don’t see the big 3 online brokers surviving much longer charging for online trading.
Bank of America does so much more business, mostly the traditional pure bank business, that the big 3 online brokers don’t do. Bank of America thinks it can make up for the cost of the trading through the interest rate it earns on the $25,000 or more deposit its customers put at the bank. It’s a great way to attract more customers and do more business as these customers might use other of Bank of America’s products. Plus, having all of your banking and trading in one account would make things a lot simpler for a lot of people, thus taking customers away from the big 3 online brokers. And, honestly, unless you’re a daytrader or swingtrader, 30 free trades should be more than enough. If you were doing 30 trades a month at the other online brokers, you’d be racking up more than $300 a month just in trading fees.

Watching from the Home Stands
These brokers don’t have enough of the regular banking services to absorb the extra trading costs or battle Bank of America on this end, so it’ll be interesting to see how things play out. As you probably guessed, I think Bank of America is the winner here. I guess part of the reason I can be amused as I watch this story unfold is that I sold my TD Ameritrade Stock (AMTD) at a higher price for a profit AND I had bought a lot of Bank of America (BAC) lower and am up pretty nicely on that stock. Otherwise, I’d probably be crying about how my AMTD crashed.

**Disclosure: I do not own shares of TD Ameritrade (AMTD), E*Trade, or Charles Schwabb as of this writing.**

** Disclosure: I own shares of Bank of America (BAC) as of this writing. **

This entry was posted on Thursday, October 12th, 2006 at 8:37 pm and is filed under Banks & Finance, Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.