(Forbes) After eliminating trading commissions earlier this month—which set off a rush among other brokers to do the same, Charles Schwab plans to offer clients the opportunity to trade fractions of stocks, amid increased competition in the industry to attract the next generation of investors.
- Charles Schwab on Thursday told the Wall Street Journal that fractional share trading and several other new programs would be launched in the coming months—although no exact timeline or fee structure was specified.
- The move, geared toward attracting more young clients, would make Schwab the first among the major brokers to let investors buy and sell fractions of stocks.
- That ability comes in handy, especially for younger investors who don’t necessarily want to pay a high price tag for companies like Amazon or Google parent Alphabet, which cost $1,787 and $1,252 per share, respectively.
- It isn’t a new concept—numerous other small firms have already been offering fractional share trading for a while: M1 Finance, Folio Investing and Motif, for instance.
- In the context of the brokerage industry, large firms have increasingly leveraged their huge customer bases by adopting many of the successful features of startups who seek to gain market share.
- Popular investing app Robinhood pioneered the free trading model long before Schwab led the big brokers in slashing commission fees, while startups like Betterment helped popularize robo advisors—which is now a big part of Schwab’s business, totaling over $40 billion in assets.
Crucial quote: When asked if Fidelity planned to similarly offer fractional trading to clients, a company spokesperson said, “As the largest online brokerage firm with nearly 22 million accounts, we are always exploring and testing various enhancements to our platform.”
Tangent: Like some other brokerages, Schwab still makes most of its money from customer deposits—clients’ uninvested cash often goes into sweep accounts that pay low rates; the firm then lends that money out at a higher rate, turning a profit.
