Buzz
Recently, major brokerages like Charles Schwab and TD Ameritrade revealed plans to eliminate commissions for online stock and ETF trades, making the cost zero.
This idea isn’t entirely new—Vanguard has been offering free ETF trades for some time, while Fidelity provides zero-cost index funds and ETFs. Additionally, newer brokerages like Robinhood, which launched in 2012, have operated without trading fees, allowing users to invest through its app without any extra charges.
However, for many of the traditional brokerages, trading fees have been a key revenue stream. For example, up until recently, Schwab charged $4.95 for U.S. stock, ETF, and options trades, according to the Wall Street Journal. (Under the new pricing, options trades will now cost 65 cents).
Is eliminating fees a bad business decision? While it might seem like there’s a hidden agenda, these companies are simply trying to attract you as a customer. No-fee trades don’t necessarily need to be avoided, but you should understand where else you might incur charges to balance it out.
What you need to know about offers for free stock trading
According to Nancy Marshall-Genzer, a senior reporter at Marketplace, these brokers are essentially running a promotion to get your attention. “They’re competing for individual investors who are likely to shop around for stock trades, and these brokers are aiming to entice them in,” she explained on the Marketplace Morning Report.
It’s similar to how a grocery store operates, as Marshall-Genzer described: You enter to grab the item on sale, but end up picking up full-price items too. “They hope that once you open an account, you’ll opt for one of their financial advisors, or they’ll charge you custodial fees for holding assets in your account. But first, they need to get you through the door,” she said.
Before jumping into commission-free offers, take a look at the brokerage’s expense ratio. This is the percentage you pay for the privilege of keeping your investments in a specific fund. If your focus is on holding and watching your investments grow rather than making frequent trades, this figure is crucial to consider.
Keep in mind that brokerages have the ability to adjust their pricing models at any time.
