The era of commissions has officially ended. On Tuesday, Charles Schwab announced that it’s eliminating commissions on all online trades starting next week. The news plummeted competitor’s stocks, pushing TD Ameritrade down 26% and E*Trade 16% on Tuesday.
In just days, TD and E*Trade announced that they too would end commissions on online U.S. trades, with more brokerage predicted to follow.
Show me the Money
The move is great for customers, but how will brokerages make money? Bank of America estimates TD Ameritrade generates 28% of its revenue from commissions, E*Trade 17%, and Schwab only 8%. While the revenue from commissions is more significant for some companies than others, each has a diversified stream of income.
Schwab, for example, will still charge a fee for things like trading foreign stocks, large blocks, and fixed-income assets, as well as a 65-cent charge per options contract. Brokers also make money on the other side of the trade from payment for order flow. This happens when a professional trading firm buys the retail-investors orders and executes the trade for them, typically making money on the spread between the bid and the offer.
While these companies can afford to drop fees, their bottom lines will undoubtedly take a hit. Despite the risk, the change seems to be a more long-term play. Traditional brokerages have been pressured to change their fee structure to target younger retail clients who have become accustomed to commission-free trading. By pivoting to a customer-first business model, brokers are more likely to survive a Millennial dominated economy.
At Voyager, we saw the value of putting our customers first from day one. Crypto is for the masses, and our goal is to make it as easy and affordable as possible for people around the globe to trade, hold, send, and receive crypto.
We’ve built an order routing system that identifies inefficiencies in the broader crypto market and takes advantage of pricing disparities to save our customers money. We take a fraction of the savings and pass the rest on to our customers. This allows Voyager to operate commission-free and keeps us motivated to save customers money on every order.
We'll continue to look to diversify our revenue stream but, our customer will always come first.
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