Today we are in a changing world where the trading commission structure is changing. It was just yesterday October 1, 2019 that Charles Schwab announced that it was cutting its fees down to zero on stock trades but .65 for options.
This is huge for the stock trading community, but what does it mean to you as a retail trader?
Trading Commissions
Robinhood was the first broker to offer zero commission fees to their users. However from many people I have heard that these fees come with a price.
The price is not direct in a commission charge, but for them it was a price of not being able to get the best fills for orders.
So even though the initial thought is this is great that there are no fees especially for over traders, it does come at a price that is hidden.
Now we see that many of the bigger brokerage houses are also reducing their fees to compete with each other.
Initially this seems like a great opportunity to get into day trading as one of the major costs of trading. Here are sold old fees
Cost of Trading Stocks
When you are a trader it is not just the profits and losses that you have to think about you are your own business owner and you do have costs
- Broker Fees
- Data Fees
- Stock Scanner Software
- Charting Platform
So eliminating the brokerage commission fees is going to help to grow your profits over night as it is truly a cost for you in placing every single trade.
So now we see that they are removing these fees but only for stock trades.
What does that mean for the options traders and futures contract traders?
Lowest option trading commissions
In order to open an options account the minimums to trade are lower than trading stocks. So some traders start with trading options before trading stocks.
The lowest options trading companies now are:
- Tasty Trade $1.00 to enter nothing to exit
- Trade Station for 0.50 cents a contract
- TD now for .65 cents per contract
- Charles Schwab 0.65 cents per contract
- Lightspeed 0-.50 per contract
- Interactive brokers 0.70 cents per contract
So now the only people to be paying fees are the options traders, which tend to be more day traders as opposed to longer term investors.
Why are they cutting trading fees?
Again it looks like a benefit to traders, especially ones that were worried about the fees in getting into trading.
But sometimes when something is too good to be true it is. That’s right why are they cutting the trading fees.
There is a major talk of recession coming and dropping these fees is going to retain customers and try to gain new customers. These new customers are going to come with money.
Why are these brokerage houses trying to gain more reserves. What is the back story besides just competing for day traders.
Originally brokerages loved day traders because the commissions allowed them to generate daily income for these brokers. But now that is disappearing.
It is no wonder that Etrade, TD Ameritrade, and Schwab have all had their stock value drop because their revenue is being cut.
I’m curious why do you think that they are cutting their fees. What is it that they are hiding to try to gain the additional money into their brokerages? Is this truly for the benefit of the customer?
Tell me your thoughts below
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This blog is for informational and educational purposes. I am not a registered securities broker-dealer or an investment adviser. The information here is not intended as securities brokerage, investment or as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any security or fund.
