Will Commission-Free Trades Change Investing?

commission free

Charles Schwab, TD Ameritrade, and now Etrade have all demolished trade fees for purchasing and selling stocks. Now that they are commission-free, will this change how consumers invest? Should Robinhood be concerned?

Matter of Time?

Robinhood was the first investment firm I heard of that had no transaction fees. I quickly signed up in 2015 and told everyone I knew that it was the way to go if you were looking to get into the stock market without paying fees. A finance blogger on Instagram noted that he knew the well-known investment firms would have to follow Robinhood’s lead to compete.

I admit I am glad that the fees are gone, but I didn’t see this coming. TD Ameritrade has the most to lose by nixing fees as it has the highest fee revenue of the three big firms. TD Ameritrade has an excellent trading platform, thinkorswim, that I use for my charts and research. You can also practice trading with Paper Money, another section of thinkorswim.

Room for Improvement

However, I don’t usually trade with TD due to the fees. Now that’s going to change. This shift will reduce my time since I can do everything in one application. The only downfall is that thinkorswim works best for me on a computer. The mobile app isn’t as thorough as the desktop version.

Etrade is the smallest of the three firms and closest in value to Robinhood. Hence, I can see it going along to remain competitive, even though it seemed to take time to convince leadership. Etrade also bought out one million accounts from Capital One Investing, so they gained market share last year.

I was a part of that move, and I like the Etrade system. It’s easy to use, but it took some adjustments once I figured out the application. However, it doesn’t come close to thinkorswim. I had considered moving over my current positions from Etrade to Robinhood, but I think I may move them to TD Ameritrade.

Market Share

Charles Schwab is the largest investment firm of the three, with over 12 million customers. It also had the lowest fees at $4.95 per trade. The cost of options contracts was not affected and remained at $0.65.

All three companies suffered losses in the stock market since making their commission-free announcements, although Etrade seems to have rebounded. Robinhood is not currently available for trades but it is raising money for an IPO. Some have warned that this may affect its fundraising since it may lose market share. Robinhood is more popular with younger investors, but that may change since the more established companies are now commission-free.

It may all come down to their mobile applications. Part of Robinhood’s draw is that you can see everything from your phone in a simplistic, easy to use mobile app. It’s the youngest of the four but is already valued over $7.6 billion. The others may need to pare theirs down if they want to attract more millennials. Additionally, Robinhood still offers free stock when you sign up, and it’s straightforward to use. A friend of mine signed up and won a share of Apple.

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