Online brokerages are fighting for customers in a crowded marketplace, and now one unlikely contender is raising the stakes by promoting the ultimate teaser--free stock trading.
Financial services powerhouse American Express Co., which stumbled with its first foray into online trading in 1996, started a fresh price war Tuesday, announcing a plan to offer free Web trading starting later this fall to investors with more than $100,000 in their accounts. The move shows just how far online brokers will go to attract customers, analysts said. Web brokers, faced with more competition even as many investors pull back in a weak stock market, are expected to spend more than $1 billion on advertising in the next year, and they increasingly are offering features such as free Net access and chances to buy into new stock offerings.
"It's a crowded marketplace--you have to find ways to stand out," said analyst Greg Smith of Hambrecht & Quist.
The ranks of U.S. Internet brokers have mushroomed to more than 100 from just a few three years ago. And some full-service firms such as Merrill Lynch & Co. will be joining the fray but have yet to fully launch their online trading operations.
Meanwhile, the volume of online trading overall, which had risen to 500,000 shares a day in the second quarter, is expected to see a decrease in the second half of the year, analysts say. If that comes to pass, it would mark the first decline since Web trading started in the mid-1990s.
Unlike Merrill, which plans to charge customers an annual $1,500 "wrap" fee for unlimited Internet trades, Amex will not charge a wrap fee.
American Express hopes well-heeled clients, lured by the free trading, will turn to its 9,800 financial advisors for services such as estate planning. The company said it will not permit customers to buy and sell the same stocks on the same day, in an effort to keep out rapid-fire day traders.
All online trades will be free for Amex customers with balances of more than $100,000. Those with balances of $25,000 to $100,000 will be able to buy stocks for free but will be charged $14.95 per sale. Those with balances below $25,000 must pay $14.95 for either purchases or sales. Trades over 3,000 shares will incur an added fee of 3 cents a share.
The average Web broker charge is $15 a trade, and there are rates as low as the $5 charged by Chase Manhattan Corp.'s Brown & Co.