Mutual fund giant Vanguard Group said it would allow customers to trade stocks and options for free, ramping up the intensity of the brokers’ fight to eliminate trading commissions.
The no-fee trading structure will go into effect Thursday for accounts of all sizes, wiping out Vanguard’s charges per trade, which ranges from $2 to $7. Option traders, however, should be aware that they will continue to pay $1 per contract, though commissions were eliminated.
Before flocking to the free-trading camp, Vanguard brokerage customers were able to trade exchange-traded funds without a commission. The mutual fund and ETF giant is making more assets cheaper than ever to invest as it attempts to preserve its brokerage business away from discount brokerage rivals, like Fidelity, Charles Schwab, E-Trade, and TD Ameritrade.
Previously, Vanguard offered 25-100 free trades per month only to investors holding at least $1 million in a brokerage account, but now there will be no restrictions, and no minimums required, to use the free-trading feature.
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Brokers sent low-cost investing to its natural conclusion
“For 45 years, we’ve been dedicated to lowering the cost of index and active funds, ETFs, advice, and brokerage services to help investors achieve better outcomes. The expansion of our commission-free platform marks the latest demonstration of this unwavering commitment to our clients,” said Karin Risi, Managing Director of Vanguard’s Retail Investor Group
The stock-trading business model of US major brokers now resembles Robinhood’s model, which makes money from interest on customer accounts, securities lending, and a small amount from payment for order flow. They had no choice but to fire back with their own enhanced free-trading offers. Robinhood surpassed E-Trade in the number of users, which exploded to more than 10 million earlier last year.
Six years after Robinhood launched with no-fee trading, major brokerages were catching up with a wave of fee-eliminating announcements over the past two months. However, the commission-free investing app was hit by a $1.25 million regulatory fine for not getting the best execution price for customer equity orders.
“However, as we move to an environment in which ‘zeros’ dominate the headlines and explicit fees become implicit, we encourage investors to look more deeply at the total cost picture. Vanguard remains a vocal proponent of clear and transparent fee disclosure,” added Risi.