IMPACT OF FREE TRADING?

[DTEJD1997]

Hey all:

 

Last week a bunch of brokerages in the USA largely moved to "free" trading for individual investors.

 

This has me thinking are there going to be some unintended consequences?

 

Could we see trading volume/volatility spike up now that there are almost no costs to trading?

 

Obviously, brokerages are going to make less money, and the economics of that business have changed for the worse.

 

Could we see asset managers have to lower fees also?  Could it set off a chain reaction?

 

Could people expect things for free in other industries?

 

Could we see more individual investors who generally have small amounts to invest get started?

 

Going to be interesting to see what happens!

[DooDiligence]

Also, will the charges for selling order flow go down & will legislation be introduced that makes it illegal?

[KJP]

 

Could we see asset managers have to lower fees also?  Could it set off a chain reaction?

 

 

Brokerages can eliminate commissions because they make money in other ways, e.g., selling order flow, interest on float, and ancillary services like margin lending.  This is similar to car dealerships that accept little to no profit on new car sales in order to sell new car buyers on very profitable ancillary services, e.g., financing and service.

 

Other than management fees, how does an asset manager/hedge fund lawfully make money?  What are the ancillary revenue streams that they would be protecting by lowering asset management fees? 

[shhughes1116]

Early this morning, I received a message from E*Trade walking back part of the "$0 Commission" move. 

 

On the 7th, all stocks moved to the $0 commission structure.  Now, they are moving OTC stocks back to the previous commission structure ($5.99 per trade, or something like that.)  Most of my trading involves OTC stocks. 

 

Anyone seeing this with other brokerages like Schwab, Fidelity, or TD Ameritrade?

[Spekulatius]

Early this morning, I received a message from E*Trade walking back part of the "$0 Commission" move. 

 

On the 7th, all stocks moved to the $0 commission structure.  Now, they are moving OTC stocks back to the previous commission structure ($5.99 per trade, or something like that.)  Most of my trading involves OTC stocks. 

 

Anyone seeing this with other brokerages like Schwab, Fidelity, or TD Ameritrade?

 

No Fidelity and Schwab haven’t walked anything back in terms of commissions. Fidelity does not allow buying noinfo OTC stocks, so keep that in mind, if you consider them. I believe Schwab has no restrictions on what you can buy , but I don’t have a lot of experience- I just opened a test account with them yesterday.

 

I personally would close my Etrade Account if I were you.

[Castanza]

For those who care. Vanguard finally joined commission free trading on equities. Also looks like they will finally update their online experience (about time).

 

https://pressroom.vanguard.com/news/Press-Release-Vanguard-Expands-Commission-Free-Platform-Beyond-ETFs.html

[lnofeisone]

For those who care. Vanguard finally joined commission free trading on equities. Also looks like they will finally update their online experience (about time).

 

https://pressroom.vanguard.com/news/Press-Release-Vanguard-Expands-Commission-Free-Platform-Beyond-ETFs.html

 

I really like Vanguard's dilapidated look (though sometimes I get the updated screen edition and it looks worse). I keep my core holdings there and the interface is so clunky it pains me to even think about trading on it. This is probably the reason why I haven't had many sell transactions on Vanguard over the years and that portfolio has been outperforming my actively managed account by a wide margin.  I guess, I'm glad that the fees are now 0.  :)

[stahleyp]

Speaking of fees, it really is amazing how much cheaper vanguard's active funds are vs the competition. You're look at .40% or less for most of them (and even cheaper with admiral).

[NoCalledStrikes]

TD Ameritrade charges for OTC stocks, but at least lets you buy most of them.

MerrillEdge doesn't charge for OTC, but is finicky over which ones it lets you buy or even sell.

Fidelity doesn't charge, but is highly restrictive to which OTC you can buy

IB charges, and used to be friendly with OTC, but is now getting hostile.

Vanguard just switched to no charge, and seems more friendly with most OTC purchases than Fidelity, buy orders below 1 cent are not accepted (which generally isn't an issue for me).

 

I am considering Schwab, because I hear they are OTC friendly, but I am worried about being shafted on their money market rates on free cash balances. At Merrill, I can shift excess funds out of the default fund into a T+1 money market fund that pays 1.45% (it was paying almost 2% before the last round of rate cuts).  The default funds pays like .05%. Can someone with an account at Schwab verify if alternative money market funds are available as my understanding is that their default pays close to zero.  In my taxable account I can always move my money out to a better online money fund, but in my IRA I need to use the options at the brokerage and it just pains me to only earn 0% on cash.

[Castanza]

For those who care. Vanguard finally joined commission free trading on equities. Also looks like they will finally update their online experience (about time).

 

https://pressroom.vanguard.com/news/Press-Release-Vanguard-Expands-Commission-Free-Platform-Beyond-ETFs.html

 

I really like Vanguard's dilapidated look (though sometimes I get the updated screen edition and it looks worse). I keep my core holdings there and the interface is so clunky it pains me to even think about trading on it. This is probably the reason why I haven't had many sell transactions on Vanguard over the years and that portfolio has been outperforming my actively managed account by a wide margin.  I guess, I'm glad that the fees are now 0.  :)

 

The amount of click-throughs is annoying. Lack of solid mobile platform is also a bit annoying.

[TwoCitiesCapital]

A behavior change I've noticed in myself is that I sell options closer to expiry.

 

It used to be for options contracts that only had small premiums, that the commission would take out a huge chunk of the return if I wanted to roll a contract before expiry OR if I was selling contracts on low-$ positions.

 

Now that commissions are zero, I trade near-expiry options way more frequently.

 

If other market participants are doing this too, I would imagine the spread between short-dated and long-dated options might narrow.

 

 

[DooDiligence]

For those who care. Vanguard finally joined commission free trading on equities. Also looks like they will finally update their online experience (about time).

 

https://pressroom.vanguard.com/news/Press-Release-Vanguard-Expands-Commission-Free-Platform-Beyond-ETFs.html

 

I really like Vanguard's dilapidated look (though sometimes I get the updated screen edition and it looks worse). I keep my core holdings there and the interface is so clunky it pains me to even think about trading on it. This is probably the reason why I haven't had many sell transactions on Vanguard over the years and that portfolio has been outperforming my actively managed account by a wide margin.  I guess, I'm glad that the fees are now 0.  :)

 

I like the way you think.