I thought the community might be interested in this news:
A new service at https://robinhood.com offers commission-free trades. They make money on a portion of interest paid on uninvested balances and interest on margin accounts rather than the legacy $8-$10 per trade commissions. The company looks substantial with a collection of big-name venture capital firms, including Google Ventures and Andreessen Horowitz backing it.
I’m sure everyone would be interested in hearing feedback from p123 members on their experience with this service. Should we revise our sims to $0 commissions? Hmmm…
Zero-dollar ($0) commissions are available for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade U.S. listed securities via mobile devices
Good luck putting orders via a mobile device if you have a high turnover portfolio, which is where you would notice the difference.
Also, there are high fees for other services. I will stick with IB, paying less than $1 /trade.
Commissions must be the least of your problems with your growing, now closed funds. You must have a major problem with slippage.
How do you deal with slippage? Do you have an institutional account or methods not available to retail investors? If so, what methods–say at IB–best duplicate your methods? If you use a retail broker what do you do?
Thanks for bringing this to my attention. As I understand the situation, Robinhood only takes cash accounts, no margin, IRA, Roth or Corp.. Additionally, they require an iOS device to enter trades on. They have two order types market and limit, and one duration: day. They are brand new, and growing quickly. They hope to add features, and lots of customers. Support is via email. Their business model is the same as Zecco's was. The last CEO of Zecco was truly thick as a brick, so its possible that Robinhood may succeed where Zecco failed.
Bill
Bumping this on the news today that JP Morgan Chase will be launching a commission free trading brokerage platform. No minimum balance is required, but from my understanding customers with less than $250,000 in assets only get 100 free trades a year. Customers with more than $250k get unlimited. The other low cost brokerages will probably have to follow in the race to the bottom.
Schwab is only charging $5 per trade currently and is marketing itself as the low cost leader, and will probably follow soon. Schwab has an OptionsXpress API that can be used to trade options and futures, but I’m unsure about straight up buying long shares. I have to say, I’m a pretty happy Schwab customer as a personal investor. They have a trading tool Street Smart Edge that is pretty powerful. They have checking accounts with nice perks (100% refund on all ATM withdrawls & international fees, automatic bill pay). A long list of commission-free trade ETFs. The lowest cost index ETFs on the market. Credit Cards with cash back rewards that get fed back into your brokerage, etc. etc… If we could get a TRADE account set up with it with zero charged commissions, I would be ecstatic.
This isn’t news, they are just rebranding it to be hip and cool via app. Most of the big banks/brokerages have offered free trades if you bank with them and carry a decent balance. I use Wells Fargo and haven’t paid a commission in 5 years. That deal isn’t available right now, but you can get $2.95 trades when linked to other products like my mortgage. Way cheaper than the stand alone brokers. I do all my banking at Wells, so I can easily move money instantly between all types of accounts. Bank of America, via their Merrill Lynch brokerage will give you 30 free trades a month if you have $25,000 in an account. You can open several accounts and never pay a commission if your balance stays that high. It is shocking to me that others use Fidelity and Schwab at all. IB is a different story given they have a real trading platform. JPM, BofA and WF don’t really have that.
Schwab has done well with price improvement. But recently stopped publishing their results for non-S&P500 stocks. Statistics HERE.
If you use market orders then I would consider how large your orders are and whether the price improvement outweighs the commissions.
If you use sizable market orders then I might suggest that you do some research before switching.
Generally, the broker will make money, somehow. But how varies. Sometimes it is the commissions, sometimes the market maker will pay the broker for order flow, if you provide liquidity a lot then the broker may get a portion of the transaction rebate (e.g., IB), etc. There is never a free lunch and how you make money for the broker will depend on your trading style. So which broker will save you money will also vary with your style.
I use IB (love its trading platform), but my wife uses TD and for the past several months we’ve noticed she is getting frequent price improvements that I can’t get with IB. This is especially true for “nickel” stocks with the 5 cent minimum spread. Frequently she gets an order filled that splits the nickel.
Don’t know exactly TD can do that. She can’t place a limit order that splits the nickel, but the fill frequently does (not all the time, but frequently). My guess is it has to do with routing orders to “dark pools”. I asked TD whether they use dark pools and all the rep would tell me is sometimes. Wouldn’t even tell me which dark pools they use.
We’ve started to keep records of price improvement to see how consistent it is. Who knows I might move from IB to TD. But I do love the IB platform.
Fidelity does a lot of price improvement on my trades, but charges a $4.95 commission. In the past 12 months I’ve made 1,100 trades, paid $5,260 in commissions, and gotten $780 in price improvements. Not exactly a bargain, but better than it used to be. I suspect that Fidelity will eventually lower its trading costs.
Yuval was very helpful in the past when I was looking at brokers and again is very helpful in sharing his experience with the community.
For those considering price improvement: brokers will talk about price improvement for marketable limit orders and market orders at the same time.
They probably shouldn’t be talked about in the same paragraph, IMHO. My market orders and marketable limit orders are in no way comparable with regard to price improvement.
I seldom place market orders now but it is my experience that the price improvement can be greater than the commissions: for my universes and order sizes. But not for Folio Investing which is ironic considering their low (zero for window orders) commissions. HENCE THE GENTLE WARNING ABOUT ZERO COMMISSIONS NOT ALWAYS BEING BETTER.
For me the published results were consistent with my experience—so at a minimum it depends on your orders size, broker and probably a lot of other things.
I just recommend you look at it if you are placing market orders. Fidelity, Schwab and IB all agree with me on this—albeit with specific recommendations on which broker to select.
