Just about every six months there’s big financial investment industry news revealing yet another bid to drive down costs, this time from Schwab. They now offer zero commission online stock, ETF, and options trades!
Over the past several years, large investment brokers have witnessed an increasing shift to lower cost and commission-free funds. Here are just a few examples of this trend:
Vanguard recently reduced fees across all funds, while Fidelity released zero-cost index funds and reduced fees, increasing commission-free ETF trading from 1,800+ ETFs (Schwab also followed suit on the same day).
Although these changes were making headway, I remained dubious that major investment brokers would ever offer free stock and ETF trading. But here we are now!
Experienced investors may recall Zecco entering the $0 stock trading arena, realizing it wasn’t sustainable after several years, alienating customers by adding fees, and ultimately being purchased out by TradeKing (later purchased by Ally Bank and rebranded Ally Invest).
Since 2013, several players have offered limited free equity trades per month if you met certain requirements (e.g. having a large minimum account balance or having various financial relationships with their bank).
Robinhood Markets emerged onto the investment scene promising similar returns in 2013, prompting me to believe they would follow in Zecco’s footsteps and succumb to bankruptcy or be purchased by one of their larger rivals (though ultimately this may still happen). Yet six years on and 6 million+ accounts later, this hasn’t happened (though probably being acquired is part of their plan).
Schwab’s move to offer free stock and ETF trading to all customers as the third-largest investment firm (behind Fidelity and Vanguard, with over $3 trillion in customer assets) was much more profound than any newcomer offering the same services. Schwab is widely seen as an innovator; whenever Schwab does something significant in the market, all other major players take notice and often follow its example – within 24 hours after Schwab announced its free trading plans, TD Ameritrade stock dropped 22% before also making announcement that they too would offer similar offers – making an impactful statement of intent from Schwab.
Update: Fidelity, Ally Invest and ETrade have now made the shift to offering free stock trading.
Mainstream free stock & ETF trading has finally arrived and I expect that any remaining broker holdouts will eventually comply with it.
Should Free Trading Change Your Investment Behavior? Will this development matter and should it have any bearing on how you invest? While I see this move as positive for investors as it furthers lower cost trends, it likely won’t change either my or your investing behaviors; although some may worry this could create bad habits; let me elaborate.
+ There are no comments
Add yours