No Commission Fees - Charles Swab, Interactive Brokers and TD Ameritrade

stphnstevey

https://www.businesswire.com/news/home/20190926005753/en/Interactive-Brokers-Launch-IBKR-Lite

https://www.reuters.com/article/us-charles-schwab-commissions/brokerage-charles-schwab-to-end-commissions-for-three-major-products-idUSKBN1WG41J

oldwally

Yes saw this on CNBC last week I think. Surprise your post hasnt had any response up to now.

Been trying to see if they make back any loss of revenue by yearly charge etc .I guess chance of it happening in UK ,is about the same as me being on next flight to Mars............:rotfl:

stphnstevey

oldwally wrote: »

Yes saw this on CNBC last week I think. Surprise your post hasnt had any response up to now.

Been trying to see if they make back any loss of revenue by yearly charge etc .I guess chance of it happening in UK ,is about the same as me being on next flight to Mars............:rotfl:

These brokers aren't part of the commonly used brokers in UK and currently have some investment limit requirements that are not practical for most. Also not sure on impact to UK account holders. Maybe why there is not much interest

At least for Charles Swab the loss of revenue was extremely small. There was also talk of fresh revenue as they no longer find the best price and offer the business to market makers. Customers need to be aware of the change in less favourable bid offer spread

I haven't had chance to look in depth into any UK changes. But both CW and IB offer accounts in UK. Think TDA do as well. The limits for these accounts, which put others off, might be discontinued too. Combined with the cheap FX rates, this would make costs of investing in foreign shares negligible

wmb194

As of a couple of days ago, e*trade has also eliminated its commission fees. It doesn't have any account fees, either.

hoc

Now also Fidelity. They will all have to follow. In theory it could happen in the UK also as most make majority from custody fees not commissions. My unscientific anecdotal experience, Brits trade far far less frequently than Americans.

oldwally

hoc wrote: »

Now also Fidelity. They will all have to follow. In theory it could happen in the UK also as most make majority from custody fees not commissions. My unscientific anecdotal experience, Brits trade far far less frequently than Americans.

One of the first to do it,in the States I mean,was Robin Hood,long way from Notts though ! There is Freetrade here,but its Phone only,not sure I fancy dealing on my cheap smart phone,would have to upgrade my glasses first though and sharpen the ends of my fingers !

stphnstevey

CS USA
0% commission
https://www.schwab.com/pricing?Spotlight_P_Pricing=

CS UK
0% commission (retained minimum $25k)
https://www.schwab.co.uk/public/schwab-uk-en/pricing-and-services/rates-and-charges

IB USA
Introduced IBKR Lite for USA investors
https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks3

IB UK
No change for UK investors
https://www.interactivebrokers.co.uk/en/index.php?f=39753#
However it was generally a $1 or 2 (about 80p+) for USA shares anyway

TDA USA
https://www.tdameritrade.com/why-td-ameritrade/free-stock-trading.page

TDA UK
Appears to be the same website as USA for opening an account

just_in_time

No commission fees are a mirage, when you start to look into it.

How can brokers do this, without going out of business? Read the articles linked to, and it appears they "sell orderflow" to market makers, i.e. they receive commissions from market makers for placing their customers' trades with the MMs. How can the MMs afford to pay those commissions? Obviously, by giving worse prices for the trades. So the customer does pay after all; the only difference is that it's less transparent. That seems like a worse arrangement to me.

However, if a broker charges an explicit commission fee but is also "selling orderflow" to MMs, that's not transparent either. This is apparently precisely what US brokers who do charge commission fees are likely to be doing. Though IB are supposed to be different, i.e. they give a choice of paying commission fees and not having your orderflow sold to MMs (so you get the best available trade prices), or not paying commission fees but having your orderflow sold (so you get less favourable prices, in exchange for not paying explicit commissions).

I'm not sure whether "selling orderflow" is allowed for trades in UK shares (because it sounds like it might be inconsistent with rules about "best execution"). If it isn't allowed, that might explain why CS don't offer "free" trades on UK shares (though they do offer "free" trades on US shares to UK customers). But why would you want "free" trades anyway, if that means you're paying hidden charges instead? And if you aren't paying your broker in one way or another, they are likely to go out of business sooner or later.

Also, emphasizing zero commissions is illogical. It is much more sensible to emphasize minimizing the total costs of investing. (I'm not saying costs should be the be-all-and-end-all of investing, but that in so far as one concentrates on costs, it should be on total costs.)

There are always costs in buying and selling shares, even if you really achieved best execution at zero commission. E.g. there's always the bid-offer spread. And sometimes stamp duty and other taxes. And if you buy in foreign currencies, there are forex charges, which can be very significant (so you are almost certainly going to lose out if you pay forex charges to convert your £ to $, in order to then buy shares on a US exchange for "free" (which probably isn't really free anyway - see above)).

IMHO, just forget this, and concentrate on more important things (such as total costs).

bowlhead99

just_in_time wrote: »

Also, emphasizing zero commissions is illogical. It is much more sensible to emphasize minimizing the total costs of investing.

Very true. A concept that infrequent sharetraders are maybe more familiar is that it's long been the case that bureaux de change on the high street or in airports have given up charging a separate 'commission' of a few quid when you change money. Instead they all want to be able to advertise "0% commission", but the way they massage the rates is such that if you were to use your pounds to buy (e.g.)dollars and then immediately use those dollars to buy pounds again, you might have 10-30% fewer pounds.