My question is an extension of Brokerage Making money.

Recently, Schwab and TD_Ameritrade have lowered commissions to zero. There are other brokers that also offer zero commission.

I know there is no such thing as free lunch, so what should an individual investor should look out for in these?

  • Schwab makes enough on net interest income alone to be profitable Oct 3 '19 at 14:18

Best broker has always depended on what your needs are (platform quality, tech/customer support, streaming news, research, option analytics, etc.) and the commission schedule. With the advent of no commission trading at major brokers, I think that it opens the doors for some traders to use some brokers who were not previously cost effective.

Interactive Brokers triggered this on Monday by announcing no commission trading (IBKR Lite), coming later in October. The fine print indicated that orders would be sent to exchanges in return for Payment For Order Flow, no longer using their Smart Routing. I would assume that the other brokers will be doing the same (PFOF). Before switching, I'm going to wait for feedback to see if anyone can quantify the slippage, if any, from PFOF. This is meaningless for Buy & Hope investors since a few cents or less price degradation is meaningless.

I suspect that this new trend is going to put a ding on Robinhood because why would people want to trade there for free on a stripped down platform with higher margin fees and no interest on cash balances when you can now have serious platform for free?

  • Parts of the first paragraph are a bit confusing.
    – RonJohn
    Oct 2 '19 at 18:48
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    Wondering if I should hurry up and ACATS out of Robinhood before they decide a higher transfer fee is the only way to stop the bleeding.
    – Ben Voigt
    Oct 2 '19 at 18:56
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    ThinkOrSwim (TOS) had superior option analytics but was $4.95 (or so) per trade. I use IBKR at 50 cents per 100 shares and and 70 cents per contract. That enables me to scale in and out of positions with no commission penalty. At TD I would pay that $4.95 for every trade and that was a non starter. The door to TOS is now open to me :->) Oct 2 '19 at 19:31
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    @Michael - It opens the door for individual investors to do whatever they want to do without regard to commissions. SEC fees will still apply but that's pocket change. Oct 2 '19 at 19:46
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    Some brokers share maker/taker rebates. Sharing PFOF may be a giant leap. For major brokers, the elimination of commissions isn't a death knell because they generate a lot of revenue from managed accounts, annuities, and other services. What does Robinhood have to offer if their firm hold on the 'no commission' market is gone? PFOF is a fraction of a penny so even if they share it, it's a blip on your radar - a rounding error You wouldn't even notice it. I can't see how this isn't a huge problem for Robinhood. Oct 2 '19 at 21:16

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