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Fidelity cuts online trading fee to less than $5

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NEW YORK (CNNMoney) -- Online trading just got a lot cheaper for Fidelity customers.

The brokerage firm has reduced its online retail prices for trading U.S. stocks and ETFs to $4.95 from $7.95.

"It's a bold move and the first time a large brokerage is below $5," said Ram Subramaniam, president of Fidelity's retail brokerage business.

The $3 drop comes at a good time: Fidelity said its users have been more active during Wall Street's recent rally.

Subramaniam said the reduced online commissions will bring sizable savings to customers, particularly more active traders.

"If you are trading 500 times a year, this price cut give you $1,500 back in savings."

The firm also lowered its option pricing to 65 cents per contract, a 10-cent drop from 75 cents, and lowered margin rates among multiple tiers.

"Across the board it's an exciting opportunity to give customers value back," said Subramaniam.

The brokerage firm, which has nearly 18 million accounts, claims it now offers the lowest prices among its major retail competitors.

TD Ameritrade and E*Trade both charge $9.99 for online U.S. equity and option trades.

But a new crop of financial tools is heating up the competition. For instance, trading app Robinhood doesn't charge a stock trade fee. TradeKing, an online brokerage firm that was acquired by Ally last year, charges $4.95 per stock and ETF trade.

Earlier this month, Schwab cut its commission on stocks and ETFs to $6.95 from $8.95.