Disruptive fintech startup Robinhood has fired another shot across the bow of the big online brokers such as TD Ameritrade (AMTD), Charles Schwab (SCHW) and E-Trade Financial (ETFC). It will now allow investors to trade options, as well as stocks and ETFs, for free.
The brokerage behind the popular Robinhood investment app, for free stock trading, said Wednesday it will charge no commission and no per-contract fee for buying or selling options, a type of derivative security. It will also forego exercise and assignment fees.
By comparison, options traders pay up to $6.95 + $0.75 per contract at TD Ameritrade, and up to $19.99 for options exercises and assignments. Stock and ETF trades are $6.95 at TD Ameritrade.
Robinhood described options, like equities, as a “thing of the past” in the digital age, when executing a trade is purely electronic.
The app maker added that its options move is tied to “the belief that sophisticated investment tools don’t need to be complex or reserved for the wealthy.” It will offer both more and less advanced options strategies, such as buying calls and puts, selling covered calls and puts, and fixed-risk spreads. The different investing strategies allow investors to not only go long on a stock when they expect its value to go up, but also to short a stock when they expect its value to go down, Robinhood said.
Even as investing apps like Robinhood make inroads with investors, TD Ameritrade, Charles Schwab and E-Trade Financial have enhanced digital offerings for a new and young audience.
Shares of TD Ameritrade fell more than 2% in intraday trade on the stock market today, but have advanced 9% from their late September breakout past a 47.36 buy point. Schwab, a top-rated, IBD 50 stock, and E-Trade were roughly 1% lower Wednesday, both also extended from recent buy points. Interactive Brokers (IBKR), which has been running up for several months, slid xx%.
Online brokerages, including Fidelity, have been cutting stock and ETF trading fees in the past year.
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Robinhood is among several new investing apps that began to allow Americans to invest in stocks for free over the past two or three years. Instead of making money with stock trading fees, Robinhood makes money with premium services such as Robinhood Gold, which lets investors trade on margin and during extended hours.
Robinhood is not a publicly traded company, but it is growing fast. The brokerage has more than 3 million users, up from 2 million in April, and is valued at $1.3 billion, seeing $100 billion in transaction volume since its 2015 launch.
Robinhood, which started as an app, added a web-based platform in November.
Clients have saved $1 billion in commission fees by using the smartphone-based platform, which is expanding to the web, Robinhood said.
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