How To Invest For Free

The big brokerage firms are battling for your cash and your business. It seems like every week I receive an email from some broker offering cash bonuses and free trading to transfer my cash over to their brokerage. As great as these offers are, most of them are merely temporary. This past week however, Charles Schwab changed the whole brokerage game by becoming the first major discount broker to offer $0 trades to its customers. This is not a promotion, special, or temporary discount offer. Zero dollar stock trading is here to stay and made it possible for you to invest for free.

Invest For Free

Free trading is a result of the pressure that the big brokers were feeling from app based investing. Apps like Robinhood with its low cost approach were stealing business from the big brokers. Online stock trading is free now. This means you can buy and sells shares of stocks, options, and exchange traded funds for free. That is a long way from the day of paying $9.99 for every trade transaction.

Charles Schwab, Td Ameritrade, E*Trade, and TradeStation are now allowing customers to buy and sell stocks for free. It is only a matter of time before Merrill Edge, Vanguard, and other online brokers drop to zero dollar trading to remain competitive. 

The Advantages of Free Trading

Free trading makes it worthwhile for individual investors to buy shares one at a time regardless of the stock purchase. Buying one share of a stock like Under Armour made no sense when brokerages charged $9.99 a share. Years ago an investor would pay $17 for one share of Under Armour and $9.99 for the trade. An investor would be paying 60% of the purchase cost just in fees. Buying one share of Under Armour at $17 a share makes perfect sense now since investors will be paying 0% in trading fees.

The big winner in free trading is the individual investor. Investors will still receive access to research and investment services but now it is free. Investors will receive more robust trading platforms, better technology, and swift trade execution while paying nothing. As a frequent stock buyer, this free trading offer is attractive to me because it gives me the freedom to select the best broker for my money based on services offered and not just the lowest price anymore.

Find a broker that offers the best retirement options (Traditional, Roth IRA) or traditional brokerage accounts. Look for a broker that offers all of the investment assets you are seeking as well.

Buyer Beware

While investing for free is a great deal; investors will need to be aware of more upselling from brokerages. Online brokers are forfeiting hundreds of millions of dollars in trading fee income and will have to make up for this lost revenue somehow. Mutual funds and bond purchases will still have fees attached for purchases and sales. Brokers will begin offering cryptocurrency trading which is a lucrative market that can generate trading income. Professional advice from brokerages will still be fee based.

I expect brokers to start charging inactivity fees for inactive accounts in which no trades are made. I also expect some brokerages to charge an annual account fee for accounts that do not reach a minimum balance requirement. Self-directed investors should also be on the lookout for more phone calls urging investors to opt for managed accounts, which charge a percentage based on money invested. Margin investing will be another product pushed as brokerages can earn interest income from loans made based on investment capital.

Zero dollar trading has made life a lot simpler for the investor looking to invest $100 or looking to invest $100,000.