How to trade stocks for free
Whether you’re a novice investor looking to get started or an active trader managing your own investments, it’s important to understand that commissions and fees limit your total returns over time. By learning how to trade stocks for free, you will not only save money, but your investments will potentially grow at a faster rate.
Investing in the stock market is commonly referred to as a zero-sum game: for every transaction, there must be a winner and a loser. Sometimes the buyer of the stock wins, sometimes the seller wins. In any case, the net gain or loss must always reach a balance of zero.
In this scenario, there is one third party participant that always comes out on top: the broker charging commissions to both the buyer and the seller. It doesn’t matter who wins the trade, the broker makes money by charging both parties to play the game.
Historically, commissions were flat-rate and based on the share price and the number of shares purchased. Stocks were usually purchased in even lots or quantities of 100 shares. Professor Charles M. Jones of Columbia Business School published a study called “A Century Of Stock Market Liquidity And Trading Costs” and found that
“At the end of 1962, the average price of NYSE stock was $40. Trading 100 shares of such a stock would incur a one-way commission of $39, or 0.975% of the money in play. is a substantial fraction.”
On May 1, 1975, deregulation allowed brokers to charge variable commissions rather than fixed rates, encouraging competition and leading to the rise of
The rise of online discount brokerages like e*Trade in the 1990s led to a drastic reduction in commission fees. The competition for the active investor’s business has intensified to the point that commissions have never been cheaper. Big names like e*Trade and TD Ameritrade charge $6.95 per trade, while Charles Schwab and Fidelity have reduced their commissions to just $4.95.
As if that wasn’t cheap enough, I’ve found several methods for investors to trade stocks for free. If there’s one thing consumers love more than low-cost services, it’s something they can get for free. Using these platforms for investing can save you hundreds or even thousands of dollars a year.
(Please note that this article should not be taken as a recommendation or endorsement of any of these services and we have no financial interest in anything mentioned. Investing in the stock market involves risk and you should always do due diligence before choosing an investment platform.)
Over the past few years, a disruptive Fintech company has changed the game yet again by offering a mobile-only trading platform that allows investors to trade stocks for free.
This app is Robinhood, a member of the Forbes Fintech 50 which I previously recommended as one of the best investing apps for 2018. The company joined the unicorn club last year with a $1.3 billion valuation. dollars. Could he become an acquisition target for a major brokerage seeking to attract millennial investors?
Besides being free, Robinhood’s appeal lies in its minimalist design and ease of execution. There are some basic charts, standard stats like P/E ratio and dividend yield and a selection of news stories. If you rely on charting tools, tax returns, or research reports for trading, you’ll have to look elsewhere.
So how does Robinhood make money? The company recently launched Robinhood Gold, a monthly subscription service that allows members to borrow money to trade (i.e. a margin account), provides access to extended trading hours and allows instant access to funds instead of the typical three-day settlement period. Robinhood also earns interest on cash placed in users’ trading account and will earn more money if the Fed continues to raise interest rates.
Robinhood not only aims to disrupt stock trading, but recently announced plans to expand into the world of free options trading and even free cryptocurrency trading. The company also plans to move from a mobile-only platform to a (possibly more robust) web-based platform. None of these expansions have been given proper timelines – interested parties can join a waiting list of more than a million people to gain access to them once they become available.
Another mobile app that has its eyes set on Robinhood is a company called Matador, which was launched in May 2017. Similar in design and concept to Robinhood, Matador also offers free trading and limited searches, but its unique feature is to focus on social commerce and community. .
Users can browse their friends’ profiles to see their holdings, trades, and accompanying percentage gains or losses. By browsing individual stocks, users can see what percentage of Matador’s total users own the stock, and a global newsfeed shows what community trends are over time regarding the popularity of certain titles .
The concept of mirroring, or copy trading, is fascinating and the application, less than a year after its launch, shows long-term potential. It remains to be seen if Matador will be able to attract investors and compete with Robinhood in the long run or if Robinhood can simply copy and implement community features.
Open a new brokerage account or switch brokers for free trades
More advanced traders will need to keep at least a portion of their accounts at full-service firms to take advantage of their research, charting, and money management tools. Discount brokers are constantly running new promotions to entice investors to open new accounts or switch current brokers. Promotions vary from company to company, but they usually come in the form of free money for depositing a certain amount into a new account or free trades.
For example, Fidelity currently offers 300 free trades with a minimum deposit of $50,000 while TD Ameritrade offers up to $600 and 60 days of commission-free trades, depending on the amount deposited.
As with almost everything in life, brokerage commissions can be negotiable. If you are currently an active trader, you can always try calling your broker’s customer service representative and try to negotiate a lower rate. Make sure you have done your homework beforehand and are armed with information on their competitors’ promotions.
Merrill Edge, launched by Merrill Lynch in 2010, offers low-cost trading commissions similar to competitors such as Fidelity and TD Ameritrade. What sets Merrill Edge apart, however, is its Preferred Rewards program, which offers up to 100 free transactions per month with an account balance of $100,000 or 30 free monthly transactions with an account balance of $50,000.
It may only be a matter of time before other brokerages follow suit with similar offerings, but for now, Merrill Edge is the only discount broker that offers free trades on a continuous monthly.
Whichever option you choose, there’s never been a better time to enhance your returns by minimizing your trading fees. Not every trade you make may be a winner, but at least you won’t be paying the house to play the game.