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Fidelity Cuts Trading Costs

The firm is slashing commissions for active investors in an effort to stay competitive.

Updated from 3:05 p.m. EDT

Fidelity Investments

rolled out cheaper trading costs and various other morsels to lure active investors, as the financial-services giant looks to stay competitive.

The privately held Boston mutual fund and financial-services firm said it is cutting its stock and option commissions for "Gold Level" customers to $8 a trade -- down from its previous $14 price. Fidelity announced several other improvements, including five-second order execution and an enhanced active-trading platform, as it seeks to snag more active-trading business from new customers and existing customers who may do their active trading elsewhere.

Fidelity aims to "be No. 1 in servicing active traders," Fidelity spokesman Dan Flaherty said.

The firm has provided services to the active-trader market for years, but Monday's news marks a stepped-up push into a crowded and competitive field that includes

Charles Schwab

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,

E*Trade

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,

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Ameritrade

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and a host of smaller shops -- including ScotTrade and Trade Station, which charges as low as 6/10-cent per share.

The online broker arena is fertile ground for price cut wars -- and Fidelity's move comes after recent moves by Schwab and Trade Station. However, Friedman, Billings, Ramsey analyst Matthew Snowling said Monday's initiatives are more a case of "Fidelity getting in line. I don't expect Ameritrade or even E*Trade to have to defend against these cuts because they are already in line," Snowling said.

Starting Wednesday, Fidelity will offer $8 commissions for stock and option trades online for customers who qualify for its "Gold Level" commission. The bar to qualify for the lowest commission was lowered, meanwhile. Investors need to make 120 trades a year and have $30,000 in combined household assets or $1 million in total assets -- down from 240 trades a year and $30,000 in combined assets or $2 million in total assets.

Fidelity will also guarantee five-second order execution or the commission is waived, and seven-day transfer of assets for individuals who switch to a Fidelity account. Fidelity is also offering an "active trader services team" -- a staff of professional traders who are well versed in options strategies, short-selling and buying on margin -- to help customers.

The $8 price tag does come with a few asterisks. You add a penny a share for every share over 1,000. And, with the options, you add $1.50 per option contract for orders of one to 99 contracts, or $1 for orders of 100 or more contracts.

"With the introduction of these institutional-strength offerings, active traders have something not available through many other firms -- low commissions, dedicated service and advanced technology -- all backed by Fidelity's heritage and reputation as a leading brokerage firm," said Jeff Carney, president of Fidelity Personal Investments, in a news release Monday.

According to Fidelity's Flaherty, the initiatives affect about 5% of Fidelity's hundreds of thousands of trading households, though Fidelity expects to see more business from the cuts. Fidelity reportedly aims to increase its active-trading customer base by 30% next year.

Friedman's Snowling said he doesn't expect the move to catapult Fidelity into the highest ranks of firms that serve active investors, but it will help Fidelity buttress its active-trading business. "Is the cut going to bring back customers that left? I don't think so. If I'm really price sensitive, I'm at Trade Station or Ameritrade," Snowling said. "But for Fidelity to securely defend its existing business, they had to make this cut."

The price cuts do put Fidelity right in the thick of the competitive territory. Ameritrade carries a $10.99 stock trade commission, while E*Trade has a $9.99 commission and ScotTrade offers a $7 commission. Meanwhile, the five-second execution bests E*Trade's nine-second execution and Ameritrade's 10-second guarantee.

"It certainly appears that they're pushing heavier into the active-trader market," said Rich Repetto, online broker analyst at Putnam Lovell. "You have to wait and see, but this certainly increases the probability that others will start lowering their prices. If E*Trade and Ameritrade start seeing attrition, then we'll see more cuts."

In afternoon trading, E*Trade shares were up 1% at $9.49, Ameritrade was unchanged at $11.97 and Schwab was off 1.6% at $12.09.