Adam Shell

USA TODAY

A full-fledged price war has broken out in the world of online stock investing.

Just hours after Boston-based Fidelity Investments said it would slash its standard commission for online stock trades and ETFs by nearly 40% to $4.95, its San Francisco-based rival, Charles Schwab, matched the lower price.

As the bull market pushes stocks higher, placing a trade online is getting cheaper as competitors duke it out on price in an effort to retain market share and recruit new clients and sources of assets in the digital age. The price war is benefiting individual investors and active traders.

Just after midnight, Fidelity announced that it would charge online retail investors $4.95, down from $7.95, to place an online trade involving U.S. stocks and exchange traded funds. (ETFs are diversified funds that trade like stocks.) A little more than nine hours later, at 9:26 a.m. ET, Schwab announced that it, too, would reduce its standard online stock and ETF trade commissions to $4.95. (Schwab's price cut on Tuesday follows an initial commission price reduction to $6.95 on Feb. 3.)

The per-trade price cuts by the well-known industry players put their costs below those of TD Ameritrade and E-Trade, which charge $9.99. Fidelity and Schwab are now competitive with low-cost providers like TradeKing, which also charges $4.95 per trade. A small, upstart brokerage Robinhood is the lowest of the low when it comes to stock commissions, however, as it offers commission-free investing for all U.S. stocks and ETFs, according to its head of communications, Jack Randall.

The latest batch of commission haircuts come amid an industry-wide push to stay competitive by lowering transaction costs and fees, said Arielle O’Shea, investing and retirement specialist at NerdWallet.com, a site that tracks and ranks online brokers.

“Online brokers are feeling the competition from robo advisors," O'Shea said, referring to low-cost digital financial advisors. "There are more places for consumers to invest their money at a lower cost. It’s good for investors.”

Before the news that Schwab was matching Fidelity's lower commissions, O’Shea had predicted the price wars would continue. “I’d be surprised if we don’t see another fee reduction soon,” she said on Monday, adding, “I don’t know how low (online trading commissions) will go.”

The moves on Tuesday to lower trading costs came after a decision on Friday by low-cost mutual fund provider Vanguard to cut the expense ratios of an additional 68 funds and ETFs. Vanguard's cut followed a similar move in December involving nearly three dozen funds.

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Fidelity was motivated by its commitment to be the “best value provider” in the online trading space, said Ram Subramaniam, president of Fidelity’s retail brokerage business. “We’ve planted the flag more strongly than ever before,” he told USA TODAY. Calling the cut to $4.95 a “big price move,” Subramaniam said active traders at Fidelity that place 500 trades a year could save a tidy $1,500.

“Retail investors are the winners,” he said. “They will keep more money in their pockets.”

Fidelity, which is home to 17.9 million online brokerage accounts totaling $1.7 trillion in assets, said it was not reacting to Schwab’s price cut earlier this month. It said the decision was made, in part, to retain existing clients and bring in new ones. Increasingly, Subramaniam said, retail investors look at value and price as key factors when choosing an online broker.

Schwab, however, acknowledged Tuesday that its latest fee cut was in response to Fidelity's move.

"We don’t want commission costs to be a barrier for investors deciding which firm to choose," said Michael Cianfrocca, a spokesman at Schwab. "So yes, when a competitor makes a pricing change, we are going to evaluate what we can do. We evaluate our pricing on an ongoing basis, and there are a number of factors we consider. Competitive pricing is one of those factors, but we also look at whether our scale and efficiency put us in a position to deliver better value to the consumer."

Fidelity responded to Schwab's price match by asserting that it offered investors more than just low prices: "Fidelity clients have the best of both worlds: low fees and an award-winning brokerage platform, including superior price improvement, client service, trading and research tools, education and investment choices," Fidelity said in a statement.

Low trading costs aren’t the only thing investors should be evaluating when selecting an online broker, said NerdWallet’s O’Shea.

Besides price, an investor also should choose an online broker based on its trading platform, trade execution, as well as its stock research and investor education offerings, she said. Compare other costs, such as account set-up fees and minimum trade restrictions, as well.

“Commission costs,” O'Shea said, “don’t matter as much if you only trade a few times a year. The more you trade the more you are going to save.”

Randall of Robinhood said most brokers still charged too much.

“We’re happy to see Fidelity (and Schwab) lower commission fees," he told USA TODAY in an e-mail. "Ideally, they would have eliminated them altogether. At Robinhood, we view commission fees as arbitrary mark-ups like taxes, which discourage participation in the financial markets."