Major stock broking firms are seeing a reduction in trading volumes according to a report in the Wall Street Journal. Investors are opting to put their money in bonds or in passively managed mutual funds such as index funds in which transaction costs are less. In such a scenario, investment in US Exchange Traded Funds (ETFs) has increased in popularity due to their relatively cheaper cost. Low commission stock brokers have made the ETF market even more attractive to investors by offering them without charging any commission. This has triggered an ETF price war among stock brokers.

The latest powerful salvo in the ETF wars by low commission stock brokers was fired by TD Ameritrade, an online stock broking firm. TD Ameritrade announced, in October 2010, that it would be offering more than a hundred ETF products without any commission. No other stock broking firm has offered so many ETFs without commission charges till now.

TD Ameritrade has started an ETF supermarket by offering a wide variety of ETFs from various issuers. In reference to as an ETF Market Centre in its press coverage, the 100 ETFs offered without commission have been evaluated and chosen by Morningstar Associates, a market research organisation.

While competitive low commission stock brokers such as Charles Schwab and Vanguard offer only in-house ETFs in their free-commission list, TD Ameritrade offers ETFs from a range of issuers such as iShares, StateStreet, Vanguard, Barclay's Bank and Wisdom Tree. As of October 10, 2010, the no-commission ETF list of Ameritrade included 31 equity and international funds, 32 bond funds, 3 sector funds and 4 commodity funds.

TD Ameritrade imposes a condition that the ETF has to be held for a minimum of 30 days. If the investor trades with the ETF before a 30-day period, then short-term trading charges have to be paid. Hence, this offer is geared towards long-term investors.

Discount Stock Brokers offering Free ETFs

The move by low commission stock brokers to cut ETF costs started last year in 2009.

Charles Schwab first started the trend in November 2009 when it launched its first ETFs. Four ETFs were offered without any commission for those who trade in its ETFs online. The list has 5 domestic ETFs and 3 international ETFs including Schwab Emerging Markets Equity ETF.

While, Schwab's proprietary ETFs do not have any transaction costs for online trades, Schwab does apply transaction charges to trading in ETFs of other providers.

Vanguard, one of major discount stock brokers, also jumped into the fray for free-commission ETFs in May 2010. Already popular for its low cost index funds, it offers 46 proprietary ETFs without any commission on transaction. Vanguard is home to one of the largest ETFs - the Vanguard Emerging Markets ETF which has US $ 30 billion in Assets Under Management. The Pennsylvania-based fund giant with over one trillion dollars in assets started its commission-free ETFs in the beginning of this year 2010.

Vanguard, among top low commission stock brokers in the US, says that it has consistent lower expense ratios for their ETF products as well as other funds as compared to the industry average. Expense ratio for a mutual fund or an ETF refers to the ration of the operating expenses of the fund to its total assets under management. A high expense ratio results in reduced returns to the investor.

To stay competitive among discount stock brokers in the ETF market, Fidelity Investments, waived commission charges for 25 iShares ETFs in online trading. The list includes US stock index funds, international equity funds and fixed income funds.

Features of Best Online Low Commission Stock Brokers

Apart from discounted transaction costs, best online low commission stock brokers such as TD Ameritrade and Fidelity offer a variety of tools and services for their investors. Some of the advantages and service features of online trading via low commission stock brokers are:

• User-friendly online trading platforms - Fidelity gives its online trading customers access to web tools such as Active Trader Pro. It provides continuous financial data updates and a smooth and fast online transaction mechanism.
• Access to exhaustive research tools and ratings - TD Ameritrade ETF Market Center at its website helps customers choose ETFs according to their needs. The investor has to fill in the required information in online forms and the ETF Market Center tool gives a listing of suitable ETFs along with corresponding Morningstar ratings. Customers can search for ETFs on the basis of factors such as
  • Focus sector - consumer services, energy, healthcare etc.
  • Style of investing - value, blend or growth funds
  • Commodity market investment
  • Regional and international market ETFs
• Current Market Data - Best online low commission stock brokers provide online streaming information regarding stock markets, with special focus on how their own funds are performing at the current moment. This can be in the form of stock market tickers as well as continuously updated tables.
• Access to analytical information - Via its ETF Market Center, Ameritrade provides its customers with market reports and financial analysis from Morningstar, a market research group. Every ETF listed for online trading by Ameritrade has corresponding analysis by Morningstar, which also provides analysts' picks among ETFs as well as a list of most actively traded ETFs.

How Low Commission Stock Brokers Benefit Everyone by No-Cost ETF

By providing ETFs without commission and at discounted rates, low commission stocks brokers help attract investors to these kinds of market investments. The no-commission ETFs are ideal for those seeking to diversify their portfolio in a cost effective manner. As for the stock brokers themselves, the ETF cost cuts will help them stay competitive and increase their customer base.