On October 3, TradeStation announced that it was offering commission-free trading to customers using their web-based platform and mobile apps. The new service, called TSgo, allows clients to trade stocks and ETFs for no fee, charging $0.50 per contract for options transactions. Free trades also apply to OTCBB/penny stock trades listed on U.S. exchanges.
The major online brokers like Schwab, TD Ameritrade and E*TRADE have all announced zero trade commissions for most products this week, as the industry tries to lure more customers by lowering or eliminating fees. Ally Invest also cut their commissions. Only Schwab also offers free OTCBB trades.
Since TradeStation is wholly owned by the Monex Group (8698 TSE), a Japanese firm, we are unable to determine the percentage of revenue attributed to commissions as their financial reporting requirements differ from U.S. listed companies.
TradeStation's legacy as an analytical trading platform, which allows its clients to build trading models that can automatically execute orders, has garnered it a client base of very frequent traders. Three years ago, the firm began reaching out to less active and less sophisticated traders, and now has just under 100,000 customers with $5.6 billion in assets.
Now when a customer opens an account, they will be given the choice to open it as a TSgo or standard account. If they choose TSgo, they will not have access to the TradeStation downloadable windows platform. Similarly, if a current customer requests to have their account converted to a TSgo account, they will receive free commissions and have access to the TradeStation downloadable platform restricted. The firm has not yet established a policy for customers who want to switch between TSgo and the main TradeStation platform, but a spokesperson says, "In all likelihood switching back and forth will be discouraged or limited."
TradeStation's pricing table is relatively complicated. For those who use their downloadable platform, which includes high-quality market data and trade executions, the existing price schedules remain in effect. You can choose from per-trade pricing ($5 for equities/ETFs, $0.50 per contract plus $5 for options trades), or per-share/per-contract pricing. The latter pricing schedules are tiered, so the more you trade, the lower the per-share/contract fee. Their systems, including web and mobile, are stable and remain available during market surges.
Statistical modeling of trading strategies is a strength of the downloadable TradeStation platform, but those tools are not included in the TSgo offering, which has some similarities to Interactive Brokers' IBKR Lite. TradeStation's fully paid stock lending program, which allows clients to share in the revenue TradeStation generates from loaning stock to short sellers, is included in TSgo.
In addition, TSgo clients can access all of the firm's educations offerings. Unlike IBKR Lite, though, orders sent through TSgo will be routed the same as orders executed through the premium platform. Interactive Brokers has said that orders sent via IBKR Lite will be routed to market makers in order to pick up payment for order flow, offsetting the loss of commission revenue.
Additional announcements of commission-free trading will continue, though industry chatter focuses on Fidelity's potential response. So far, all we have heard from Fidelity is their pride in their price improvement statistics, which are considerable, and their zero-fee mutual funds. Fidelity customers can trade over 500 ETFs without commission, but that becomes meaningless when their major competitors offer every ETF commission-free.