Robinhood was the catalyst.
An upstart broker targeting a younger demographic with the promise of "free" trading... on stock and options.
Personally, I thought it was a gimmick and not sustainable. Looks like I was wrong.
Last week there was a "race to zero" with the major brokerages -- SCHW, ETFC, AMTD, IBKR.
Looks like this is going to be a new industry standard.
HERE'S THE THING -- way too much ink has been spilled by industry reporters. Very few are talking about if there are trade setups or secular shifts.
That's where I'm stepping in -- because I've gotta write this down to at least get it out of my head.
Broker Mergers Will Start Within the Next 12 Months
This prediction appears fairly straightforward.
If you are a broker, and you've lost a major source of revenue due to competitive pricing, your margins go down. And the way to make up for margins is through volume.
So you merge with a competitor. cut the fat and increase your volumes. I wouldn't be surprised if we saw ETFC and AMTD get together. I wouldn't have said that last month but the race to zero is changing the math.
Exchanges Will Still Get Paid
While it's now free for retail to play the game, the exchanges will get their pound of flesh. And if "free trading" cranks up the volume, expect a continuation in these names.
And all these stocks still have great trends and the potential for strong continuation...
Complex Option Spreads Become More Attractive
If it hasn't been obvious, I'm a huge fan of trades like butterflies, iron condors, and other complex trades.
I'm also a huge advocate for trading actively around a core options position.
The problem with that, for many traders who didn't have competitive pricing, is that the cost of these trades became an issue. Looks like that's not going to happen anymore, and we'll see the cost of doing business continue to drop.
If you haven't looked at adding income trading to your portfolio, you've just got another reason to do it.