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E*Trade cuts lowest fee
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August 18, 1999: 11:54 a.m. ET
Investors will be able to make $4.95 transactions after 75 trades
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NEW YORK (CNNfn) - E*Trade Group Inc. dropped its lowest equity trading charge to $4.95 per transaction Wednesday, but investors will have to make a lot of trades before they can get that price.
E*Trade's $4.95 transaction cost would undercut some of its closer competitors, such as SureTrade, which charges $7.95 per trade, and Datek, at $9.95 per trade.
However, the more casual investor will continue to pay E*Trade's usual fee of $14.95 per trade and up.
This is because E*Trade has tailored its $4.95 offer toward the serious investor who trades almost every day. In order to get the lower rate, you'd have to place at least 75 trades per quarter, and the rate would kick in for only those trades after the 75th.
Additionally, charges for stop-limit and Nasdaq orders would be $9.95.
The move by E*Trade (EGRP) is part of a two-pronged strategy to garner both investors who trade heavily and those dabblers who make an investment only occasionally.
It follows a general trend by E*Trade to eventually become an online financial hub. It already, through acquisitions, offers online banking and insurance services as well.
Regardless of the type of trader, the overall objective is the same, according to Paul Johnson, senior research analyst at International Data Corporation, a technology research group.
"The purpose of trying to attract these type of investors isn't necessarily to increase commission revenue but to get control over their assets," said Johnson. "Presumably, these active investors have significant assets. That's the real goal of E*Trade."
In the initial days of online trading, companies jumped over -- or under -- each other trying to lower commission and trading costs. It was assumed a race to the bottom would ensue, in which those who could offer the lowest trading fees would be the eventual winner.
However, those investors seeking to trade online began to like having more trading and research reports, and were willing to pay extra to have someone who's a phone call away to help them over the bumps.
Eventually, quality of service emerged as a key differentiation. A case in point is Charles Schwab (SCH). Even though it charges $29.95 per trade, much higher than E*Trade and Suretrade, it has the largest customer account base among online brokerages.
That said, IDC's Johnson said E*Trade's move toward a lower commission probably won't push others to cut their rates to keep pace.
"We're seeing consistency in pricing strategies. This shouldn't change that," Johnson said.
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E*Trade
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