If you are a saver, then you are either already an investor or on your way to being one. On that note, there is some great news out this week as a number of US brokerage firms have announced ZERO commission rate for online trading/investing. This is long overdue! In an earlier post, I spoke about how brokerage firms’ commission rates negatively impact our efforts to make our money work for us whether through investing or trading activities. I also addressed some of the limitations that we have to be aware of and endure while dealing with the upstart zero commission brokerages, such as the inability to open joint as well as individual retirement accounts.
In an effort to paint a better picture of how big this news is, first we must understand that there are many individuals who work as active individual traders. Let us estimate, again, that the average commission rate for the active trader is $4 and he does 100 average trades a day for roughly 250 days a year. This means it would have cost him $100,000 a year or $1,000,000 in 10 years (yes, 1 million) in commissions for the privilege to trade. Note that is a cemented commission expense at that trading rate, whether or not the trader made any money. Such active traders will see a lot more money kept in their pockets assuming they maintain the same pattern, but so will all who are not as active.
Investors on the other hand can buy even a single share at a time, if they choose to, without worrying about the incremental cost consequences each time they buy shares. We all now have more mainstream broker choices.
So, with the upstarts like Robinhood and Webull no longer the only zero commission games in town, we do not have to deal with the limitations that are common to such upstarts. However, we cannot overlook the contributions of those pioneering firms because they helped put the pressure on the mainstream brokerage firms. We also cannot forget Interactive Broker since it is the mainstream firm to throw the first punch by offering a new tier of ZERO commission trading. Others then started following their move.
If you are an active trader or investor in US or Canadian listed companies, you just got a raise. So far we have heard of zero commission trades from Interactive Brokers , Charles Schwab, TD Ameritrade and Etrade. There should be many more in the near future which would be beneficial to more of us. Cheers!