Finding an online broker with lower trading fees doesn’t just mean saving a few quick bucks. It means having more funds to invest into stocks, shares or assets which in time means increased returns.
In this post we shall demonstrate just how this works and investigate why modern traders should seek out free stock buying platforms such as the discount broker RobinHood or the many RobinHood alternatives.
Why Stock Buying Fees Suck
Investing and speculating on stocks, shares or assets can be a great way to increase one's personal wealth and escape the wage trap. The markets (in the West) are open to anybody and even ley-traders with just a couple of hundred bucks can get started on their portfolio. Sure, the returns are (usually) neither fast nor massive but with a decent portfolio, incremental and exponential gains can be expected.
But there is a problem with getting started in trading. Fees for using stock trading platforms and brokers can be prohibitively high and deter many would-be participants. The average online trading fee in the US is $8.90 or $30.00 for a broker assisted trade. Note that the fee attaches to each and every trade that is made so if you are a regular Joe looking to put in maybe $100 per month, then the fees will eat up 8-30% of your investment amount. When you consider that 8% is widely considered to be a good return, that means it can take 1 – 4 years to recoup the cost of the trade.
Of course, if you are throwing $10k in then you will hardly notice the $8.90 fee and that is exactly the point. Because of the fixed fee structure, trading has in practice been something of a closed shop that shut out nickel and dime investors.
The Added Benefits of Low Trading Fees
Let's take a closer look at this. If for example you have $100 to invest but the platform or broker takes 10% of it, then that means you get $90 worth of whatever asset you sought. Now let's imagine the stock performs especially well and yields a 10% return of $9 precious dollars. Had we been able to put the whole $100 into the stock though, then the return would be $10. Over time, that extra percentage compounds and becomes exponential. Basically what we are saying is that whenever you pay a trading fee, you don’t just pay it once, you pay it multiple times over.
This is why low trading fees are a triple win. They don’t just make trading more attractive and accessible, they don't just save traders in the here and now, but over years add up to serious net gains.
Using A Discount Broker
Anybody new to trading may well be tempted to sign up and create an account with one of the prestige brokers. Afterall, these are the guys who know what they are doing and run a successful, trustworthy platform.
But in reality, they don’t really offer all that much to regular investors. Firstly, any ‘advice’ they can give is very limited and they are not going to call you up one morning and say “you should invest in this new stick now, it's gonna explode” – ultimately you are on your own. Rather, all brokers actually do is provide the platform that connects buyers with sellers and charge handsome fees for it. For small-time, DIY investors, they are simply a waste of money that could be better invested.
For this reason discount brokers (low fee brokerages) have found a very willing market. The rise of discount brokerages means that there is an alternative. Discount brokers provide the same function as the prestige brokers but charge a fraction of the fees. In fact, some offer completely free trading as their business model allows them to make revenue in other ways (mining your personal data for one).
The most famous discount, fee-free broker is probably Robinhood who shot to infamy following the GameStop controversy but there are others available in the same space.
Robinhood Alternatives
As we said, RobinHood isn’t the only one in this space.
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- SoFi – Best For Joint Accounts
SoFi Active Investing offers the discount broker basics such as no trading commissions, no account minimums and like RobinHood, brings it all to you in a high-quality mobile app experience. Like RobinHood, SoFi is aimed at beginners.
However, note that unlike RobinHood SoFi does charge a 1.25% commission on crypto currencies and at this time does not offer EFT’s. Also SoFi allows investors to open joint accounts with significant others and also offers three different retirement account options making it equally suitable for longer term investors.
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- Fidelity – Best For Free Stock Buying
Fidelity is one of the world's largest brokers which makes it more the antithesis of RobinHood rather than a direct competitor. Still, Fidelity have clearly been paying attention and is trying to capture some of RobinHoods customer base by launching its own app offering $0 Stock and ETF trades.
Crucially though, Fidelity is not able to offer Cryptocurrency trading options but is looking into a BitCoin EFT.
Final Thoughts on Using a Discount Online Broker To Trade
The investment journey is a long one. Whilst it does require patience, it doesn’t have to require a load of capital to get started anymore. Thanks to a host of discount broker options offering free stock buying and low trading fees, anybody can get started. If you are looking for an established online broker offering low stock buying fees, then why not consider Robinhood or one of the RobinHood alternatives.