During the month of October 2019, we saw a number of online brokers chop their equity commissions to $0. That activity kicked off at the beginning of the month and continued until Halloween. Brokers are now battling over the quality of the trade executions rather than costs.
The most recent online broker to cut their commissions to zero is eOption, which announced that as of November 1, 2019, its equity commissions are $0 and it will charge $0.10 per contract for options. ChoiceTrade cut its equity commissions to $0 in mid-October, with options fees set at $0.40 per contract. ChoiceTrade will cap commissions at $50 per month, which will put a lid on costs for very active options traders.
New Features Added by Interactive Brokers
Interactive Brokers announced several feature updates for retail investors. A new order type, Cash Quantity, allows clients to purchase a specific cash amount of a stock rather than a number of shares. Using Cash Quantity, you enter a dollar amount (or any amount in your base currency if you’re not trading in U.S. dollars) for your order, and the tool calculates the number of shares you can trade. If the price moves, the number of shares is adjusted to accommodate the entered cash value. This order type is currently available to customers who use the Traders Workstation; IB expects to extend this functionality to their web and mobile platforms in the near future.
Customers must opt into holding fractional shares in order to receive the full dollar value of this order type; otherwise the trade results in an integer share order. For example, if you enter an order for $5,000 of Apple [ticker: AAPL] when the market price is $256 per share, you’ll receive 19.53 shares if you’ve enabled fractional shares. If you haven’t, you’ll buy 19 shares and have $135.68 leftover in cash.
Interactive Brokers says that this order type was originally set up for algorithmic traders who were rolling a cash amount into a large position, which involved a number of orders that got filled throughout the day. The Cash Quantity capability was extended to all customers in late October.
Charles Schwab has announced that its customers will be able to trade fractional shares in Q1 2020, but with the Cash Quantity order type in place now, Interactive Brokers is jumping ahead of them.
Interactive Brokers also announced that its clients can now trade on the Moscow Exchange (MOEX), which offers access to stocks, bonds, options, and futures. The MOEX also operates Russia’s center securities depository and is the country’s largest clearing services provider. Tradable assets are listed in rubles for now and there is no short selling allowed.
There are several other updates announced in IB's most recent newsletter, including the Fund Parser, additional fundamental data, and a hedge fund marketplace.
M1 Finance Adds a Second Trading Window
M1 Finance, one of the winners in our 2019 Robo Advisor Awards, added an afternoon trading window for clients who participate in their M1 Plus program. All client trades that are queued up before 9am Central Time execute in a trading window that opens at that time. M1 Plus, which is available to clients who pay $125 per year for a variety of benefits, adds a second trading window daily that opens at 2 pm Central Time. M1 says it added the second window to give clients more control over their accounts and to take action when the market moves. The second window also gives customers in the western United States an additional opportunity to place a trade. Other benefits of M1 Plus include a lower base rate for loans taken out against your equity, a higher interest rate on cash, and 1% cash back on debit card purchases.
New Order Type for Options Traders at Robinhood
Robinhood has added a stop limit order type to its options trading capability due to frequent requests by their customers. A stop limit order can give a trader precise control over when the order should be filled. This order type is triggered when the asset you want to trade hits a particular price, then a limit order is entered. An options trader might construct a trade that enters a limit order for a particular strike price and date when the underlying stock hits the trader’s target. Robinhood explains its thinking behind offering this order type in a blog post. There are no commissions for trading options on Robinhood’s website or mobile app.
Just the Beginning
These enhancements are just the beginning of the new wave of technology and services that brokers are launching in the wake of the commission war. We expect more shots to be fired in the execution quality battle, and some changes in options commissions as well. Stay tuned.