This Just Ruined Robinhood…

Charles Schwab recently announced $0 trade commissions, and its impact effectively cancelled Robinhood Investing, M1 Finance, and so many other brokerages – here’s why. Enjoy! Add me on Instagram: GPStephan

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First, Charles Schwab is a top tier, full service bank…they have physical locations to walk into, they have stellar 24/7 customer service where you can talk to an actual person, they have retirement and custodial accounts, they have a great user interface, great research tools, a well designed app, free ATM services…and now, completely free trades.

This beats Robinhood and M1 finance on pretty much EVERY SINGLE level.

And to me, this move just makes sense…Charles Schwab has a market cap of about 55 BILLION DOLLARS…and the vast majority of its revenue doesn’t come from stock trading commissions. In fact, according to CNBC, commissions only make up 3-4% of its net revenue…so cutting them out entirely might prove to be a HUGE opportunity to attract more customers to its platform…and also, MAKE MORE MONEY.
https://www.cnbc.com/2019/10/01/charles-schwab-is-eliminating-online-commissions-for-trading-in-us-stocks-and-etfs.html

This is because, in 2018, Charles Schwab made $763 Million from its trading revenue…which sounds like a lot to give up…until you realize that $5.8 BILLION DOLLARS came from net interest revenue, that grew by 36% over the last year. With that type of growth, interest revenue on cash deposits could GREATLY outweigh the money they’re “losing” by offering commission free trades…not to mention the business they can now take from Robinhood, M1 Finance, and many other brokerages.
https://www.sec.gov/Archives/edgar/data/316709/000031670919000008/schw-12312018x10k.htm

Charles Schwabs effect by lowering fees to $0 didn’t go un-noticed, and had far reaching impact…shortly after announcing it’s $0 commission, TD-Ameritrade stock plummeted over 30%…because, according to SEC filings, 36% of the companies revenue came from commissions and transaction fees…meaning that Schwab’s rate cut would undermine 1/3rd of it’s competitors revenue.
https://www.sec.gov/Archives/edgar/data/1173431/000117343118000125/amtd_20180930x10k.htm

And so, not surprisingly, TD Ameritrade announced – THE NEXT DAY – that they, too, would be lowering their trading commissions to…you guessed it…to $0.
https://www.businesswire.com/news/home/20191001006211/en/TD-Ameritrade-Introduces-0-Commissions-Online-Stock

To me, all of this is just a race to the bottom – each company is under-cutting the other in an effort to get YOUR business, and YOUR money. While Robinhood was certainly a pioneer for $0 stock trades in an easy to use app, they unfortunately lagged when it came to everything else…their customer somewhat sucks, they don’t offer any retirement accounts, you can’t re-invest dividends, you can’t buy fractional shares, and they don’t offer any banking services…this left the door open for OTHER, more established companies to replicate the Robinhood model…do it WAY better….and then…take over.

I personally believe we’re going to see most other brokerages follow this model and offer $0 trades, as well, until it just becomes the industry standard.

For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com