It is a known fact whether you are an active trader or a starter looking to invest, commissions or broker fees limit returns with time. Trading stocks for free helps you in not only saving money, but it also compounds your investments quickly.
Investing in the stock market is a zero-sum game, which means for every winner, there must be a loser. Sometimes the seller wins, while sometimes the buyer edges past the seller.
Whatever may be the scenario, the third-party participant, or the broker rules the roost. A broker charges commission both from the buyer, as well as the seller. Regardless of who wins, he makes great money!
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Charles Schwab, the largest broker in the US and one of the most renowned stockbrokers in the world, cut the online stock-trading commissions to zero in October. The move sent shock waves across the stock trading industry. It made it very clear to brokers, both in the US and the world alike, that there was an immediate need to reinvent their strategy or get blown away in this massive tide.
The US Securities Exchange Commission (SEC) had ordered the end of fixed commissions back in 1975. What was predictable back then has become a reality today. Stock trading and ETFs listed online come with zero-commission to match Robinhood’s revolutionary pricing.
Nomura, which is a financial services group and global investment bank in Japan, is one of the early ones that charged no commission for trading Japanese stocks. However, other developed countries are yet to catch the no-commission train.
In Canada and the UK, where most banks dominate the market, they charge a premium for any trade. Besides a few lesser-known FinTechs, who enable commission free trading, there is not much hope currently.
The rise of the volatile crypto market has led to new players entering the market, who’ve brought with them a fast-paced and highly technical trading style.
Millennials who are a significant force are brand loyal, and almost everyone owns a smartphone and is more or less likely to invest in the companies they identify. The Fintech Revolution has brought relative ease and accessibility to this generation, and have placed plenty of financial assets at their fingertips.
The buying and selling of stocks at one point required a phone call to a stockbroker who would charge you a fortune to execute a trade. Times have changed; these days, you can enter your stock trades through various websites or stock trading apps.
Millennials can not only trade using these apps, but it also allows them to choose how they want to trade.
How Does a Trading Platform Work?
A trading platform allows you to open, close, and manage market positions through an intermediary such as an online broker. These brokers offer the platform either for free or at a discounted price. Traders use a variety of trading platforms in accordance to their trading style and volume.
There are two types of trading platforms:
- Prop platforms – These are customized platforms developed by large brokerages to befit their distinct conditions and trading style.
- Commercial platforms – These are specific to day traders and retail investors. You can identify them by ease-of-use and the collection of helpful features like news feeds and charts.
Things To Consider While Picking a Trading Platform
While considering trading platforms, investors and traders alike should look into all the features available and the fees involved. Day traders may require features like depth charts and quotes which assist them in decision-making.
On the other hand, option traders lookout for features that help them visualize strategies. The trading fee is an essential consideration while choosing a platform.
Traders who use scalping as a trading strategy, drift towards platforms with low fees. However, small costs translate to fewer features and informational research.
Some trading platforms do not disclose any information about the broker. In contrast, other platforms are only available when working with a selective broker. So it is crucial to consider the reputation of the broker before investing in a specific trading platform.
Also keep in mind that the trading view should meet your need and requirements as an active trader.
Last but not least, some trading platforms have specific conditions to qualify for their use. Like, they may require traders to have some amount in equity to approve for margin trading.
What is the new norm?
Like the famous saying goes, when there are no costs for a product you use, then you are no longer the customer, you just became the product.
One of the most significant sources of revenue for you as a broker is to finance or loan out the money traders don’t have in play in the market. Today, providing a free brokerage account is the new norm.
Though you do not charge hefty commissions, you can still make a lot of money from stock trades. You can earn from something called “payment for order flow,” where you get fees for sending customers to computerized trading firms.
Trading firms match the buyers with the sellers. They make money by selecting the small spreads between the prices offered by buyers and sellers, or by trading the futures market and stock prices.
You, as a broker, can make money from merely lending out the cash traders aren’t using. And once they sign up for free trades, they have a chance to sell them other services.
The Bottom Line!
Zero-commission trading is usually a win for investors. However, there is always the temptation to over-trade and run out of stock positions more often because it doesn’t cost anything to do it.
There are undoubtedly some good reasons to sell stocks; the lack of trading commissions is not one of them. Have a long-term focus and savor the long-term compounding gains of commission-free stock trading.
There is no better way to increase your wealth than investing in the stock market. However, using the wrong broker could cause a big dent in your investing returns.
Try Alpaca, a financial app backed by some of the best investors in the industry globally with deep financial and technology expertise, and grow your wealth multiple folds!