Commission Free Trading (CFT) options are quickly becoming ubiquitous among traditional investment brokerages since Charles Schwab and TD Ameritrade announced their CFT services in September of last year. The recent rise of generous offers by major brokerages may be a tactic to undercut popular new digital trading systems like Wealthsimple Trade.
Wealthsimple Trade is the new stock-trading method that is restructuring the way clients can control and understand their investments. As a digital platform, users can set up an account and choose their first trade in just a few minutes. Wealthsimple provides informational content that explains investment in simple terms so clients can have a better understanding of what’s happening to their money. This new trading method makes trading accessible, efficient, and easy to understand.
What Is Commission Free Trading?
Traditionally, people who wanted to start investing approached brick and mortar investment brokerages for a broker who understood the complicated trading system to perform the trading in their place for a fee. This fee can come in many forms such as a minimum deposit or account balance that can be anywhere from $500 to over $10 000 for the service. The high price just to open an investment account would limit access to people with lower income or large debts such as students and young adults. Traditional brokers justify the expensive charges for the purposes of:
- Online stocks ETFs trading
- Representative-assistance for every trade
- Expense ratio on funds
- 401(k)s
- Paying the brokerage for its service based on transaction amounts
- Financial advice via robo-advisor or human-advisor
These charges stack high enough that it will make a dent in the overall return for the client.
Commission free trading options comes at no cost to the client to begin investing. As always, it is important to read the fine print before consenting to anything since large banks usually only offer CFT for its own proprietary funds. Other major exchange traded funds (ETFs) not a part of the brokerage will still have fees.
How Does CFT Impact Traditional Investment Brokerages?
Before major brokers hopped on the bandwagon, smaller online brokers were offering free stock trades and more helpful services to potential investors. One of these popular brokers, Wealthsimple, eliminated commission fees with the use of technology to automatically do the trading for the investor. Wealthsimple also rebalances financial portfolios eliminating human error and the time-consuming traditional process that involves forms and signatures. In its place is the reality of the one-click trading system.
As a more efficient, cost-effective, and easy trading method, services like Wealthsimple attract the clients that bigger banks exclude, specifically students and young adults. This large and active customer base interest in CFT provided an opportunity for bigger banks to build and invest in younger clientele for the future. Large investment brokerages have enough money to fall back on to offer such a cost-cutting service and exist to compete against digital brokers.
The Future of ETF Trading
Like everything else too good to be true at first glance, it’s important to be aware of any attempt by digital and traditional brokers to obscure trading fees.
