Online Brokers Open Physical Offices/Online Trading Is Free for Large Depositors

The cost of trading stocks online has plummeted since the inception of online trading in the 1990s, thanks to the low overhead achieved when an internet-enabled brokerage uses the latest technology to cut the amount of costly office space and support staff required to execute trades. (Processing trades online is vastly more cost effective than the pre-internet process of placing orders by phone with individual brokers.) Furthermore, an increasing number of investors are using the internet as their primary method of buying, selling and tracking investment portfolios and financial accounts, regardless of whether those portfolios consist of stocks, bonds, mutual funds or other assets. Likewise, tens of millions of households now manage their bank accounts online. Research and investment advice (both good and bad) are readily available and easily located on the internet. Virtually all stock brokerages that offer online trading also make research reports available online to their registered account holders.

In October 2019, Charles Schwab Corp. ceased charging commissions for trading stocks, ETFs and options online. Competitors including the former TD Ameritrade Holding Corp. (which was acquired by Charles Schwab in 2024) and E*Trade Financial Corp. (now a subsidiary of Morgan Stanley), Fidelity Investments and Merrill Edge rushed to do the same. Brokers now must find alternative ways of generating income. These methods include Payment for Order Flow (PFOF), in which brokers route customer trades to market makers who then compensate the broker for the right to execute those trades. Another method is charging interest on cash balances, which is then often invested in short-term securities. Margin lending generates revenue by charging interest to clients who borrow money to buy securities (margin lending). Online broker revenue is also generated by premium services such as fees for advisory services, market data and advanced research; as well as asset management fees and charges for wire transfers, account inactivity or currency conversion.

Also, similar to most banking companies, leading online brokerages are closing many of their physical storefronts to focus on online services. An exception is Fidelity Investments, which has a nationwide chain of large storefronts in addition to its popular web site.

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