January 15, 2005 07:35 AM
Ameritrade Offers $5 Stock Trade As Brokers' Price War Heats Up
Excerpt: The bare-bones program is available online or by touch-tone phone only, and doesn't include live price quotes, news, research or other tools that Ameritrade offers to customers who pay its conventional $10.99 for stock trades.
And now for the $5 stock trade.
Escalating the price war at discount brokers, Ameritrade Holding Corp. is testing a program called IZone that offers trades at about half its regular commission.
The bare-bones program is available online or by touch-tone phone only, and doesn't include live price quotes, news, research or other tools that Ameritrade offers to customers who pay its conventional $10.99 for stock trades.
Ameritrade's move comes as Charles Schwab Corp., the biggest discount broker by number of customers, and other rivals have been cutting commissions in an attempt to lure investors back to the stock market. The lower rates, combined with a rising stock market, have increased volume at many firms, but some analysts are concerned that overall revenue may be declining because of the discounts.
Ameritrade, the biggest discount broker measured by its customers' trading volume, began testing the 12-week pilot in five cities after Christmas. It is using direct-mail pitches to rival firms' customers in New York, and also is advertising in local papers and radio in Los Angeles, Chicago, Denver and Phoenix, Ameritrade spokeswoman Donna Kush said.
Anybody who opens an account with at least $5,000, however, can sign up for the program at www.ameritradeizone.com if they qualify. In an effort to ensure that users are self-sufficient investors, Ameritrade requires IZone users to have two years' experience as a discount-broker client and at least two years' experience as an Internet user, the site says.
"We're testing how experienced, self-directed clients respond to different price points," Ms. Kush said.
Ameritrade risks losing revenue if current customers switch to the cut-rate plan, said Fox-Pitt, Kelton analyst David Trone. "If they are existing customers, there is cannibalization, while obviously gaining competitors' clients is an incremental positive," he wrote in a research report.
Ms. Kush said the Omaha, Neb., firm's conventional $10.99-per-trade commission remains compelling because the plan includes streaming quotes, intraday charts and real-time account information. IZone users must pay an extra $9.99 a month, after a three-month free offer, for those features, and more for analytical tools and news reports. If they call for broker-assisted orders, they must pay at least $24.99 a trade.
Ameritrade could succeed in attracting customers who keep accounts at competitors in order to get their free tools while piggybacking on the cut-rate $5 price, Mr. Trone noted.
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