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Why No Commissions Shouldn't Encourage Investors to Become Day Traders

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Have you heard the news?

Brokerage firms such as Charles Schwab (SCHW) - Get Free Report and TD Ameritrade (AMTD) - Get Free Report have both announced that that they were eliminating commissions.

Analysts at Barclays slashed their ratings on E*Trade, Schwab and TD Ameritrade two notches, to underweight, following the announcement, which sent shares in TD Ameritrade to their lowest level in three years. Barclays suggest Schwab 2020 fiscal year earnings could slump by some 12% as a result of the commission cut for its 12 million online active accounts, while E*Trade and TD Ameritrade could see a 30% reduction in their respective bottom lines, reported TheStreet's Martin Baccardax.

"I think it's great for the retail investor, right? Commission fees, they may have been previously small in size, but they add up over time when you're constantly trading and they eat away people's longterm gains. So I think this is great news for them, but at the same time, I don't think it's an excuse for the retail investor to become a day trader, right? Just flying around in and out of trades intraday. I don't think that's a sustainable strategy. So for those retail investors who just keep their same longterm approach, they're the ones poised to reap the most benefits from this," said Jeff Marks, senior portfolio analyst with Action Alerts PLUS. 

Art Hogan, chief market strategist at National, added that he doesn't think that investors who own shares of the brokerage companies should panic.

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