I don’t care about free stock trades

Free stock trades

The first time I ever traded stocks was when I invested fake money into real companies that we thought would grow in value. We tracked their progress and learned if our investments gained or lost value. This is the introduction about picking companies with limited information and hoping that it pays off. Even this activity helped to understand some gaping problems; this why I don’t care about free stock trade.

Fast forward a few years and I have started to earn a little bit of money, only a few hundred dollars. I thoroughly researched investment platforms that I might have to pay $12 just to invest $100! If I wanted to diversify and invest $24 that’s 24 percent of my investment lost to fees.

History of free stock trade

Eventually, I went with a (now closed) site called Share builder that allowed me to make multiple trades a month for $12. I know most of these sites have an absolutely crazy fee, that’s why I don’t care about free stock trades. For those like me that learned investing in the stock market, we unknowingly failed at investing. A decade ago if you wanted to invest in a single stock an online broker allowed you to trade for less. Even at Vanguard if you invest in an online stock you get 25 free trades a month.

A few years ago, Robin Hood launched $0 per trade with a $0 minimum account balance. For people new in investing, you could put in as little money. The other online brokerages have taken notice, and started offering free trades just to be competitive. This follows the trend when you needed to pay just to have a checking account in stocks to support free trades. Every week more and more platforms are moving towards a free model and that is why I don’t care about free trades.

Free Isn’t Really Free

You shouldn’t trade more just because it’s free the market is a loser’s game, once when you buy and again when you sell. Having the ability may cause you to feel like you’re in control – but you’re not! You can’t control the market, and that’s why I don’t care about free stock trades. You can’t reliably anticipate whether your timing is right, but it’s impossible to make a good trade every time. Even if you’re Warren Buffett, you’re sure to make those mistakes with a small enough portion of your investments.

Trading more means paying more tax

Trading more means paying more taxes if you’re investing in an after-tax account, then you’ll need to pay taxes each time you sell a fund for a gain. The amount you’ll pay will be determined on how long you’ve held that fund. If you hold the fund less than a year then you’re on the hook, that’s why I don’t care about free stock trades. You’ll pay more in taxes that are likely going to be higher if you hold for less than a year.

Platforms sell your trade activity to make money when you click buy or sell, as a lot happens behind the scenes. In the ideal case, your buy order with the lowest priced sell order will be out there on the open market. This guarantees that you’ll get the best price, and not all brokerages do this, that’s why I don’t care about free stock trades. Some will first send your trade intention to a 3rd party, that can then buy or sell that stock before your trade executes.

This is one of the ways Robin Hood has managed to stay free, and their customers aren’t getting the best possible deal for their stock trades. It may only mean a cent here or there, but for Robin Hood, selling this information adds up. Platform lock-in makes it easier for them to sell you expensive products, have you ever heard the term “loss-leader”. Most companies have used this strategy– putting items on sale, happy hour at bars, and rotisserie chickens at Costco.