E-TRADE is one of the first internet brokers in the United States. It joins an increasing number of online brokerage firms that began offering commission-free stock and options trading in October 2019. Additionally, E-TRADE provides a wide range of services, including three internet platforms and two mobile apps, making it a viable solution for passive investors and casual traders.
Although it offers various services, such as news, research, and screeners, E-TRADE remains easy to use. E-TRADE is one of the best options for novice investors due to its numerous educational resources.
What exactly is E-Trade?
E-Trade is an online brokerage and bank that provides various financial services, such as the ability to invest in stocks, open savings accounts, and borrow money. It employs different methods in generating revenue, including net interest revenue, compensation for order flow, commissions, fees, and service costs.
E-Trade online is a simple-to-use platform that includes live streaming quotes, portfolio analysis, market analysis, and educational resources. While it is not intended for experienced traders, its screeners will assist you in identifying stocks, bonds, exchange-traded funds, and mutual funds that fit your needs and investment objectives.
Who is the owner of E-Trade?
Morgan Stanley (MS) is a Parent firm of E-trade. In 1935, the colossal financial services firm was founded in New York. The company operates 1,200 offices in 41 countries and provides investment management services to JP Morgan Chase’s 4,700 locations.
Apart from E-Trade, Morgan Stanley’s businesses include Eaton Vance and Solium.
Morgan Stanley paid $13 billion for E-Trade. The investing corporation paid $58.74 per share of E*Trade in exchange for the company’s $3.1 trillion in assets.
What Business Model does E-Trade Use?
E-Trade’s Business approach is based on convincing customers to fund a financial services account. To entice customers, it offers complimentary and discounted trade services.
E-Trade earns income on money market funds before and after customers make investments.
While stocks are free to buy in, options contracts, bonds, futures, and mutual funds require a small fee. Investors can choose their investments and receive assistance with transactions over the phone or in-person at a local location. E-Trade’s margin account fees are comparable on a sliding scale.
E-TRADE offers traders and investors a variety of services and products and a fully functional financial instrument for day traders. Indeed, the company’s brokerage accounts allow traders to make transactions fee-free, decreasing trading costs for newcomers.
With E-TRADE, you can trade options, futures contracts, and bonds for a modest fee. The organization’s portfolio management services cater to the risk appetites of both individual and institutional investors, with options for self-directed, automated, or completely regulated accounts.
Clients may also link their savings and checking accounts to an in-house debit card and use it just like any other debit card to make transactions.
What Products and Services Does E-Trade Provide?
This platform serves as the foundation for E- Trade’s US stock trading platform for retail customers. Additionally, they provide low-cost futures and options, as well as bonds.
Portfolios can be managed manually or automatically. This service is available to both individual and institutional clients with varying risk tolerances.
Additionally, individuals, families, and businesses can benefit from E-Trade’s higher-interest savings and checking accounts.
E-Trade enables you to open tax-deferred retirement (IRA) accounts, kids’ savings accounts, and accounts for anyone over the age of 59.5 who is simply saving.
E-Trade: Pros and Cons
- Simple tools
- Large investment selection.
- Good customer support.
- Access to substantial research.
- Enhanced mobile app.
- Commission-free stock, options, and ETF trades.
- Difficulty in navigating the website
How does E-Trade make money?
E-trade makes money using various strategies which include the following:
1. Interest-based profits
E-Trade marketing focuses on financing your brokerage, bank, retirement, or PMS accounts. The more money you invest with them, the more interest they generate.
E-Trade earned $1.9 billion in net interest income in 2019. That is money earned without the individual having to spend anything. As a result, their advertising emphasizes financing your accounts rather than requesting transactions.
E-Trade’s business approach is built on the interest generated by millions of users’ float investments. Offering “free trading” to ordinary investors is an excellent strategy for increasing their float, as they are less likely to engage in aggressive trading.
In simple terms, when you fund your E-Trade accounts, they collect interest on them in a bank without you trading a single cent.
2. Commissions on transactions
Around 10% to 20% of those who choose to trade on E-Deal are active, which means they trade frequently and in considerable amounts. And a sizable portion of the trade both futures and options, the stock market’s most profitable yet risky sector of E-trade.
E-Trade charges the following commissions for stock, futures, and bond trading:
- Investing in stocks costs $0.65 for every trade.
- Futures contracts cost $1.50 per contract.
- Bonds: $0.10 per bond, with a minimum of $10 and a maximum of $250.
Each choice costs $0.65, which adds up rapidly if you trade more than 30 contracts per quarter. However, you will receive a discount of $0.5 per contract if you exchange more than 30 contracts per quarter. If you do not execute the transactions within seven days, you will be charged; there are no inactivity or low-balance fees, as there are with other brokerage firms such as MFGlobal and TradeKing.
3. Service fees
They earn money by managing clients’ portfolios, administering retirement accounts, and providing other critical portfolio services (which they also charge fees for). They also make money from early withdrawals from retirement accounts, withdrawals of excess contributions from retirement accounts (which they do not permit), and conversion of a Roth IRA to a Traditional IRA (and they charge you a fee for this).
Their margin lending service charges a variable interest rate on their money based on the credit quality. Additionally, E-Trade generated $580 million in fees and service charges in 2019.
Through E-Trade, customers place orders, which are then routed to market makers, exchanges, and other market participants for fulfillment. This is conventional commercial practice, so E-Trade is not acting abnormally here.
E-Trade distributes orders to the groups to accommodate the order flow. Additionally, this is a widespread industry practice. Why do these financial institutions pay for order placement through E-Trade? Because they earn from the bid-ask spread when orders are filled.
E-Trade receives less than a penny per share for order routing. It may not seem like much, but it adds up when you realize that there are approximately 300,000 trades per day (each with multiple units).
FAQs on How does E-trade make Money
Is E-Trade worth using?
Yes, E-Trade is an excellent choice for traders looking for low-cost stock, ETF, and options trading. Additionally, the brokerage offers a sophisticated mobile app for Apple and Android smartphones, as well as managed and automated portfolio offerings for less active customers.
Is trading at E-TRADE free?
Yes, E-TRADE, like many brokers, does not charge a commission when trading stocks, ETFs, and options listed in the United States (though options trades still incur a per-contract fee).
How does E-trade make money without commissions?
E-Trade generates revenue through two sources: order flow and interest on the free float. By investing customer cash in money market funds, Etrade earns income on them. Additionally, they benefit when consumers use Etrade’s margin to buy or sell equities.