October 3, 2019
Christmas Came Early – Free Trading Starting October 2019
Today (October 3rd, 2019) marks an important milestone in investing. Today is the first day that TD Ameritrade (NASDAQ: AMTD) is offering commission-free trading. Charles Schwab (NYSE: SCHW) and ETrade (NASDAQ: ETFC) are dropping their trading fees to zero on Monday, and Interactive Brokers (NASDAQ: IBKR) opened their own zero-commission trading platform called IBKR Lite. This trend in commission-free investing was started by Robinhood Investing, the revolutionary platform that had been offering commission-free trades since 2013.
Before today, TD Ameritrade charged $6.95 per trade. Check out my blog post about how I got them to lower it to $3.95 for me. Now they finally went all the way. But what does this all mean?
Resist the Temptation to Day Trade
One of the ultimate barriers to day-trading was trading fees. Now that that hurdle has been surpassed, I believe that many people will try their hand at day trading. I will not be one of those people. As you know, we Wolves believe in long-term investing in great companies as our main strategy. Check out my free ebook to learn more.
It’s not that I don’t think day trading can’t be profitable. It’s just something that you need to have passion for and do for a living if you want to make any money at it since you’ll be sitting in front of a computer screen clicking buttons for 40 hours a week. You’ll also be at a major disadvantage competing against major hedge fund sharks with much more capital, experience, and sophisticated tools. You’ll kind of be like a high school basketball team playing against an NBA team.
The One Stock at a Time Strategy
Since I started using Robinhood in 2017, I’ve never purchased more than 1 share of stock at a time on their platform. Commission-free investing is the ultimate tool for investing small. Like I mention in my eBook one of the biggest mistakes I made was investing too big. By investing small, you can survive more mistakes and learn from them while reducing the risk of going broke. Check out my One Stock at a Time video series to learn more.
One change I plan to make is to turn off DRIP investing and take the cash dividend instead. DRIP stands for dividend reinvestment plan. One of the biggest advantages of DRIP investing is that you can buy partial shares of stock you own without incurring a trading fee. For example, if I received a $20 dividend, DRIP will put that $20 back into the stock without incurring a trading fee. If instead, I had to buy that $20 stock and pay a $5 trading fee, I’d be paying $25 for a $20 stock, which would be totally absurd. Now with zero fees, I can just buy the 1 share of stock whenever I wish instead of relying on DRIP.
DRIP still has its advantages and I’ll be using it in certain cases, such as where the stock has a very high share price, which would mean that I’d have to risk too much of my capital to purchase 1 share of stock.
What will happen to Robinhood?
As I’m sure you know, Robinhood Investing revolutionized the industry by offering zero-commission trading in 2013. I would say that they are the #1 reason why these other big brokerages have finally followed suit. I love what Robinhood has done for investing and this is a huge milestone. But with all of the big brokerages lowering their fees to zero, it takes away Robinhood’s biggest advantage. So what’s next for Robinhood?
Will They Get Bought Out?
This doesn’t make a lot of sense. Robinhood has disrupted the brokerage industry. One can say that they disrupted the disruptors, as Charles Schwab was known to have disrupted the industry many decades ago. So they probably won’t get bought out by an existing brokerage. If they do get bought out, I see a tech company like Google, Apple, Amazon, or PayPal making a better fit. But those companies may not want to take on the regulatory confinements that come with owning a brokerage. Another option we might see would be for Robinhood to merge with another fintech disruptor like M1 Finance or Acorns.
Will They Re-Invent Themselves?
I’m rooting for Robinhood to re-invent themselves because I love a good story. I’d like to see what they can do next to keep their customers and tremendous growth going. They have grown to 6 million customers and already have an estimated private equity market cap close to ETrade. My guess is that the team over at Robinhood has already thought about this day of reckoning. Since it’s what smart people do, it wouldn’t surprise me if they may already have an Ace up their sleeve.
Only time will tell and I can’t wait to see the next chapter of this story.
So what do you think about zero commissions? Share your thoughts on social media and in the comments below.
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Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.
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