COMMISSION FEES CAN take a large bite out of investment returns when buying and selling individual stocks, funds and other investment products.
Traditionally, these fees ranged from $1 to as much as $50. Fortunately, more online brokerages are moving toward a free stock trading model, which is good news for investors. In fact, Robinhood, an investment app, has offered zero-commission trading for years.
"Cutting commissions is definitely a step in the right direction in terms of reducing the costs for the investor," says Stan Gregor, CEO of Summit Financial in Parsippany, New Jersey.
In addition to free trades on stocks, some online brokers allow commission-free trading of exchange-traded funds – these are funds that trade on an exchange like stocks.
Here are the seven best online brokerages for free trading services:
Charles Schwab (ticker: SCHW)
TD Ameritrade (AMTD)
Charles Schwab (SCHW)
Charles Schwab is one of the more recent entrants into the free trades fray and it may be a good option for investors who are building a portfolio for the long term. The brokerage offers free online stock and ETF trading, along with many no-load, no-transaction-fee mutual funds. Options trading is offered for 65 cents per contract.
Patrick McDowell, research analyst and portfolio manager at Arbor Wealth Management in Miramar Beach, Florida says that Schwab takes the cake in terms of both pricing and function.
"They have the best combination of easy-to-use tech, banking and lending services and customer service," he says. "For the average investor, they are hands-down the best choice for a custodian."
Fidelity is an established name in online stock trading and it's one of the larger online brokerage firms to adopt a commission-free trade model. Fidelity's free trades apply to online U.S. equity trades, ETFs and options. The fee for options trades in a retail account is 65 cents per contract .
As of June 2019, the brokerage began offering more than 500 commission-free ETFs. This online broker also features a handful of zero expense fee index funds which may catch the eye of the cost-conscious investor, including the Fidelity Zero Total Market Index Fund (FZROX), Fidelity Zero International Index Fund (FZILX) and the Fidelity Zero Large Cap Index Fund (FNILX).
Webull positions itself as a low-cost online brokerage, with no commission fees and free stock trading in its zero-commission brokerage account. Free trades apply to U.S. listed equities.
The platform's commission-free trading model is designed to remove the barrier to entry to the stock for investors who are not wealthy, says Anthony Denier, CEO of Webull Financial.
He says the platform may suit investors who are beyond the starter phase of investing but still have room to learn and prefer a hands-on approach versus a "set it and forget it" attitude.
Like other online brokerages, E-Trade free trades include U.S. stocks, options and ETFs. A contract fee of 65 cents applies to options trades, up to the first 29 trades per quarter. Once an investor reaches 30 trades per quarter, the options contract fee drops to 50 cents. Futures contracts trade at $1.50, with the fee increasing to $2.50 per contract for cryptocurrency products.
Overall, however, E-Trade offers a solid combination of investment variety, minimal fees and a highly maneuverable trading platform.
Merrill Edge
Merrill Edge Self-Directed trading features free stock trading for Bank of America Preferred Rewards members who prefer a DIY trading strategy. Unlimited free trades apply to online stock, ETF and options trades, with the standard 65-cent contract fee added on.
To qualify for Preferred Rewards membership, investors are required to have an eligible Bank of America personal checking account and maintain a three-month average combined balance of $20,000 between Merrill Investment accounts and/or Bank of America deposit accounts. Merrill Lynch Wealth Management clients who hold more than $250,000 in assets with Bank of America and Merrill are not eligible for Preferred Rewards.
An upside of this online brokerage account for the beginning investor is the initial zero dollar minimum investment requirement.
TD Ameritrade (AMTD)
After acquiring Scottrade in 2017, TD Ameritrade has emerged as one of the best online brokerages for free trades, with its investment mix and ease of use. There are no commissions to trade U.S. listed stocks, ETFs and options online. Investors pay a 65-cent contract fee for options that's in line with other online brokerages.
TD Ameritrade also offers access to hundreds of no transaction fee mutual funds as another opportunity to lower trading costs.
Blain Reinkensmeyer, head of research at StockBrokers.com, says that in his company's estimation, TD Ameritrade was already the number one broker overall before moving to free trades.
"At zero dollars per trade, the value proposition for customers is only stronger," he says.
Investors should note TD Ameritrade is being acquired by its brokerage rival Charles Schwab in an all-stock deal valued at $26 billion. The deal to combine the two firms is expected to close in the second half of 2020.
M1 Finance is a newer online brokerage that offers free trades and it may appeal to millennial investors who want a simplified way to build a stock portfolio. "M1 Finance isn't a traditional brokerage, but a broker-dealer," says Tess Wicks, founder of Wander Wealthy, a financial coaching platform.
Broker-dealers buy and sell securities on behalf of their customers. The platform charges no commissions or markups and features many exchange-listed securities to choose from.
One potential downside is the lack of mutual funds or options trading, which Wicks acknowledges may detract from M1 Finance's appeal. But she says those additional features may be overwhelming to newer investors who are diving into the stock market for the first time.
Leveraging Free Trades
While many of these brokerages offer free stock and ETF trades, they tend to be silent about extending zero trading fees to mutual funds.
Experts say the average investor may not save too much money by the changing landscape since most DIY investors don't trade a lot. But the new landscape may encourage better portfolio maintenance among ETF investors.
"While the industry has come out and made a major statement with commission-free trading, it's still important to understand what that actually means for you and your portfolio," Gregor says. "It does mean free for ETFs and equities, but not mutual funds, which are a major component of many portfolios."
In short, investors are wise to open a dialogue with their advisors to ensure they understand what they're paying and how trades fit into their long-term strategy.
10/24/2019 "Now that the playing field is level, we have to go back to what broker-dealers are supposed to do: offer a better platform and customer experience. "Anthony Denier said.
10/24/2019 "There is more to investing than cost." Anthony Denier, CEO of Webull, talks about what's next for Fintech because of the zero commission bombshell with Forbes.
10/24/2019 The event, which provides amateur and veteran traders the chance to winprizes throughout the five week paper trading competition, officially runs from Monday, October 7th to Friday, November 8th.
Download on the
Securities trading is offered to self-directed customers by Webull Financial LLC, a broker dealer registered with the Securities and Exchange Commission (SEC). Webull Financial LLC is a member of the Financial Industry Regulatory Authority (FINRA), Securities Investor Protection Corporation (SIPC), The New York Stock Exchange (NYSE), NASDAQ and Cboe EDGX Exchange, Inc (CBOE EDGX).
Webull Financial, LLC is a CFTC registered Futures Commission Merchant and NFA Member. Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement and other relevant Futures Disclosures located at www.webull.com/fcm-disclosures prior to trading futures products. Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).
Advisory accounts and services are provided by Webull Advisors LLC (also known as "Webull Advisors"). Webull Advisors is an Investment Advisor registered with and regulated by the SEC under the Investment Advisors Act of 1940. Registration does not imply a level of skill or training. See additional information on the Disclosures webpage. Trades in your Webull Advisors account are executed by Webull Financial LLC.
Webull Financial LLC is a member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 in any cash awaiting reinvestment). An explanatory brochure is available upon request or at www.sipc.org. Webull Financial LLC’s clearing firm Apex Clearing Corp has purchased an additional insurance policy. The coverage limits provide protection for securities and cash up to an aggregate of $150 million, subject to maximum limits of $37.5 million for any one customer’s securities and $900,000 for any one customer’s cash. Similar to SIPC protection, this additional insurance does not protect against a loss in the market value of securities.
Options trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. Losses can potentially exceed the initial required deposit. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options before trading options.
All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. The past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss in a down market. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.
Diversification does not eliminate the risk of experiencing investment losses. Margin trading increases risk of loss and includes the possibility of a forced sale if account equity drops below required levels. Margin is not available in all account types. Margin trading privileges are subject to Webull Financial, LLC review and approval. Leverage carries a high level of risk and is not suitable for all investors. Greater leverage creates greater losses in the event of adverse market movements.
Investors should be aware that system response, execution price, speed, liquidity, market data, and account access times are affected by many factors, including market volatility, size and type of order, market conditions, system performance, and other factors. Market volatility, volume and system availability may delay account access and trade executions.
Free trading of stocks, ETFs, and options refers to $0 commissions for Webull Financial LLC self-directed individual cash or margin brokerage accounts and IRAs that trade U.S. listed securities via mobile devices, desktop or website products. A $0.55 per contract fee applies for certain index options and a $0.10 per contract fee applies for oversized option orders. Relevant regulatory and exchange fees may apply. Please refer to our Fee Schedule for more details.
No content on the Webull Financial LLC website shall be considered as a recommendation or solicitation for the purchase or sale of securities, options, or other investment products. All information and data on the website is for reference only and no historical data shall be considered as the basis for judging future trends.
