The margin on trading is quickly becoming negative so banks think they can absorb them and profit on flow and potentially the asset base. MS needs more assets if they want to start lending.

> margin on trading is quickly becoming negative

Both institutional [1] and retail [2] trading are is still profitable. Even for smaller shops. That said, the business has economies of scale. It thus becomes more profitable the larger one is.

[1] https://www.ft.com/content/d7ab03c2-0939-4665-aa72-a2b922da7...

[2] https://www.forbes.com/sites/jeffkauflin/2020/08/03/robinhoo...

It's also worth remembering that some of these outfits--certainly including Etrade--became popular largely because they were offering $7 or so trades at a time when the traditional brokers might have been charging more than $50.

By contrast today, if you use, say, Fidelity for other purposes like company stock plans, there's not a lot of reason to use Etrade for personal trading given that most trades are free on both platforms.

MS isn’t a significant lender really so I don’t see that happening (they don’t get deposits like a Citi or JPM). Not sure how they could make that switch. That’s a huge cultural change no? Now, they do do some relationship lending in small amount to investment banking clients off their own balance sheet... that is small relatively speaking though.

I just got a mortgage from them, and they do have their Cash Plus banking product.

It was actually a super smooth process better than when I bought my last house with Chase. If they don’t do more mortgages they should, the experience was excellent.

O really? Morgan Stanley has mortgaged they originate and sell directly to individuals?

I’m learning new things

Nope. They want more data - especially trading data. It's why charles schwab is offering free trades. Apparently they believe the data generated is more valuable than charging $4 per trade.

> MS needs more assets if they want to start lending.

No they don't, they have nearly a trillion in assets. And if they wanted more assets, they would buy up local or regional banks.

Just like tech companies started buying other companies for their "IP", now the trend is towards data. Whether it is to train their algorithms, to package and sell or whatever.

> they believe the data generated is more valuable than charging $4 per trade

They're selling the order flow [1]. Just like Robinhood. This isn't a data play in a tech-company acquisition sense.

[1] https://en.wikipedia.org/wiki/Payment_for_order_flow

I'd be very surprised if Schwab started selling order flow. One reason why the old guys prefer Schwab/TD to robinhood (and paid the commission) was because of more consistent fills because Schwab wasn't selling order flow

> I'd be very surprised if Schwab started selling order flow

All the discount brokers sell order flow. When I was an options trader over a decade ago, we bought Schwab flow.

Professional trading platforms like IB tend to be more execution oriented.

Schwab and TD Ameritrade already sell their order flow, which shouldn’t be surprising in the least if you pay attention to stock and option trading.

Also, having your order sold to Citadel doesn’t mean you’ll get a worse fill.. Citadel still has to respect NBBO prices for fills

> having your order sold to Citadel doesn’t mean you’ll get a worse fill.. Citadel still has to respect NBBO prices for fills

Lots of orders fill better than NBBO in dark pools. That’s how Citadel et al make money. That said, the slippage doesn’t really matter for small cheque sizes—it’s too small to matter.

Even with Schwab, I get tons of fills less than NBBO. Maybe not as much or as good as IB, but you're still getting price improvements a lot of the time.

They have to report the exact fraction of orders they sell, to whom, and for how much, so no need to speculate: https://content.schwab.com/drupal_dependencies/psr/606/2020-...

TL;DR: they primarily sell to Citadel and Virtu.

and in other times, you can make money off of the float. Especially if you’re geared towards individuals making lots of short-term trades.

> It's why charles schwab is offering free trades

CS is offering free trades because IBKR offered free trades. There was a cascade effect in the industry last year wherein IBKR announced free trades, and within two months the entire industry also started offering free trades.

We'd need to figure out why IBKR made that change. If you read the announcements, it sounds like it was just so they could get more lending (margin trading), options, shorting, etc fees.

https://www.fool.com/investing/2019/10/01/interactive-broker...

I'm not sure if IBKR lite allows you to control order flow, so there might be some profit there too. I'd guess that's a major distinction between IBKR-pro and IBKR-lite.

> We'd need to figure out why IBKR made that change

Robinhood.

Seems unlikely? Does robinhood really cater towards IBKR's original userbase?

Some. Since trader can have multiple accounts. So, some in IBKR, some in ToS and some in RH. It's not binary. Maybe you put all your meme stock gambling in RH for example

Charles Schwab started offering free trades because their competitors all started offering free trades. There was a "fee war" a year or two ago where each brokerage lowered their fees in response to others lowering theirs.

https://apnews.com/article/534da63064b54ccdbcbb68434677ff54

Just FYI, TD Ameritrade was comprised of Toronto Dominion Bank, which previously swallowed up Waterhouse Securities, buying Ameritrade. So consolidation has been going on for a while.

>TD Ameritrade was comprised of Toronto Dominion Bank

Not exactly - After the Toronto-Dominion bank (aka TD) had previously bought Waterhouse Securities and formed TD Waterhouse, it was Ameritrade that bought the US part of TD Waterhouse from TD and rebranded itself as TD Ameritrade. TD continues to own 40% of TD Ameritrade. After Charles Schwab closes their majority acquisition of TD Ameritrade, TD will continue to own about 13% of the company. But TD has never been a majority shareholder of anything with the word Ameritrade in its name.

TD continues to be a major institution in its own right in both Canada and the US, and has engaged in plenty of other consolidation outside the scope of what's currently TD Ameritrade. Not disagreeing with the general point.

Thanks for the revision, I couldn't remember exactly how that merger/buyout had gone down.

Having dealt with both TDAmeritrade and Charles Schwab, I'd say that's probably a good thing. Neither were great, but Schwab was a much better user experience than TDAmeritrade in my opinion.

While I've had no issues with Schwab, I wonder what they're doing/did that made them the leading discount broker and not get gobbled up by someone. Of course, I'm sure they're also kicking themselves for not getting the Millennial/Gen-Z customers that Robinhood has.

They did sell to Bank of America in the 80s, then the founder bought the company back after a few years. I recently read Charles Schwab's book and would recommend it if you are interested [1].

[1] https://www.amazon.com/Invested-Changing-Forever-Americans-I...

I've used both. I love ToS and the two times I've had to get support ToS was great - like the first CSR could repro my bug and filed a ticket - and it's since been fixed.

This is what happens when almost every public co. becomes a growth company—the consolidation is inevitable. They are just buying revenue.

A large part of this is that the move to zero-fee trades meant there's less money to maintain current operations, so by acquiring, they can, yes, "buy revenue," and save money by reducing redundancies and economies of scale. A world with zero-fee trades can only support so many brokerages.

In the past volume was king. A brokerage made money on volume. Nowadays, while volume is still important because of payment for order flow, investing the float has become a lot more important and represents a large portion of brokerage revenue.

> Charles Schwab is in the process of consuming TD Ameritrade

Deal received the final approval last week[0] and is set to close early next week.

[0]: https://www.federalreserve.gov/newsevents/pressreleases/orde...

Or are there any small/new companies coming up?

I believe Robinhood is the only recent one with any significance in the industry.