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Title : Why Some Brokers Eliminate Trading Costs
link : Why Some Brokers Eliminate Trading Costs

Why Some Brokers Eliminate Trading Costs

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This week, several big-name brokers such as Charles Schwab and TD Ameritrade announced that they would reduce their commissions on online shares and ETF trading to zero.
This is not a completely new concept - Vanguard has been promoting free ETF trading for a while, while Fidelity offers index funds without fees and ETFs. And some newer online brokers have built their businesses from scratch without trading commissions. Robinhood, for example, which was launched in 2012, does not charge trading fees for its smartphone investment applications.But many of the old brokers earned most of their income from trading fees. For example, until this week, Schwab billed customers $ 4.95 to trade U.S. shares, ETFs and US options trading, the Wall Street Journal reported. (Option trading will cost 65 cents under the new fee structure).Isn't dropping costs a bad business move? Looks like there is a catch. But in reality, these companies are just trying to catch you as a customer. That does not mean that free trade must be avoided. But you have to know where else you can pay to make up for it.

What you should know about free stock trading offers

These brokers basically have sales to attract you, Nancy Marshall-Genzer, a senior reporter at Marketplace, explains to Marketplace Morning Report. "They compete for individual investors who trade stocks and tend to shop and these brokers are trying to lure them."It's like a grocery store, the report explains: You go in to look for one item for sale, and take several other items at full price when you are there. "So they hope you will open an account, maybe you will go in with one of their financial advisors, they can charge you a custodian fee to store assets in your account. But before they can charge you anything, they have to get you in, "Marshall-Genzer said.