TD Ameritrade is an online brokerage that offers trading in stocks, futures contracts, exchange-traded funds (ETFs), forex, options, mutual funds, and bonds. It also offers margin lending and cash management services. Its popular no-fee trading platform is good for investors who want to maximize their resources. Other services carry fees which drive revenues for TD Ameritrade.
What Is TD Ameritrade?
TD Ameritrade has been providing brokerage services to clients since 2006 when Ameritrade acquired TD Waterhouse from Toronto-Dominion Bank and the combined company was thereafter named TD Ameritrade. It immediately became a leader in the fixed commissions market and has since gone to a no-fee trading platform for stocks, ETFs, and options. The company was acquired by Charles Schwab Corporation (SCHW) in 2020. SCHW trades on the New York Stock Exchange.
TD Ameritrade Business Model
TD Ameritrade is a discount brokerage firm that competes with companies like E*Trade, Legg Mason, BlackRock, and Pershing. Discount brokerage firms charge a flat nominal fee for trades. In TD Ameritrade's case, many stocks, ETFs, and options are purchased for no commission or fee. The company makes money on other types of trades that they facilitate as well as through margin lending.
As a discount brokerage, TD Ameritrade has more than 11 million customers and is considered one of the largest discount firms in the country. For the fiscal year 2020, TD Ameritrade maintained more than $1 trillion in assets under management.
Currently, the company allows investors to buy and sell:
Fixed income investments
The company also offers margin accounts to investors where it makes money on extended credit and cash management services. As well, it does provide full brokerage services to some investors.
5 Ways TD Ameritrade Makes Money
1. Stock and ETF Transactions
While TD Ameritrade does not charge a fee for online stock and ETF trades, facilitated transactions do have a fee. If an investor uses the Interactive Voice Response Phone System, they are charged a $5 fee. If the trade is broker-assisted, there is a $25 flat fee. There is also a $6.95 fee per transaction for over-the-counter (OTC) trades.
Tip: Investors looking to gain investment exposure to TD Ameritrade can do so via the publicly traded shares of The Charles Schwab Corp.”
2. Mutual Fund Transactions
TD Ameritrade changes fees for no-load mutual fund purchases. These fees can be up to $49.95 for most funds or $74.95 for certain fund families that don’t pay TD Ameritrade for record-keeping. There's no charges levied on mutual fund transactions that have a load, nor no-transaction-fee (NTF).
3. Options Contracts
There is no commission paid for online stock options contracts that are bought and sold, though there is a separate per contract fee of $0.65. If the Interactive Voice Response Phone System is used, that adds $5 to the transaction while broker-assisted contracts have $25 added.
4. Futures Contracts
Investors can participate in futures markets at TD Ameritrade. Traders pay a $2.25 fee per futures contract transacted. There are also exchange fees and regulatory fees that must be paid that TD Ameritrade does not control.
5. Margin Trading Fees
Margin lending rates are charged to investors borrowing money to conduct transactions. The fee may change based on interest rate conditions. The most recent posted margin interest rate is 8.25%
Warning: Buying any investment on margin creates leverage which can drive larger profits on an investors' capital, but that leverage also increases potential losses.
Charles Schwab On Seeking Alpha
The Charles Schwab Corporation, which owns TD Ameritrade, is a publicly traded company. Investors interested in learning more about Charles Schwab's business or financials can find useful information and analysis at Seeking Alpha. Schwab's stock quote page alone contains company analysis, recent news, a chart and basic statistics, and a high-level review of the stock's Quant Ratings and Factor Grades.
Investors wishing to dig into the company's financials can do so from the menu bar as seen below:
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TD Ameritrade is a brokerage that offers commission-free trades for most stocks, but makes money off from other product trades, facilitating transactions, and margin lending. Investors should perform due diligence on any company before investing in the stock.
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