Online Brokerages with Free Stock Trading in 2019

Free Stock Trades Celebration
Photo Credit: MatanVizel

If you are an active stock or ETF trader and haven’t been paying attention to the news lately, there have been some major financial developments that could have a big impact on your wallet. This is even bigger than when Fidelity announced just over a year ago about their zero-fee index funds.

On October 1, Charles Schwab announced that they were reducing their online trading commissions for U.S. and Canadian-listed stocks, options, and ETFs to $0, effective October 7. That’s zero dollars, as in completely free. Schwab previously charged commissions of $4.95 per trade before this announcement.

Immediately after the news, Charles Schwab’s stock price dropped 9.1%, E-Trade’s was down 16%, and TD Ameritrade’s tanked 26% in one day. This wiped billions off the net worths of the founders, not to mention the many billions in market caps from the companies.

After Charles Schwab got rid of their trading fees, I got emails over the next week from TD Ameritrade announcing they too will be going commission-free starting October 3, with E-Trade following suit on October 7. Expect more brokerages to do the same or risk missing out on new customers as they go with their competitors.

Eliminating trading fees may have cost the major discount brokers each hundreds of millions of dollars a year in revenue, this is actually great news for the individual investor.

Brokerages That Now Offer Free Trading

Here is a running list of stock brokerages that now offer commission-free trading.

Updated: October 17, 2019

Ally Invest

As of October 2019, Ally Invest has also dropped their trading commissions for stocks, options, and ETFs to zero. There is still a $0.50 fee per contract on option trades, down from $0.65 before. The only time you will pay a commission for stock trades is if the stock you wish to purchase is less than $2.00 share. Then the trading cost is $4.95 plus $0.01 per share.

There are no account minimums to open a self-directed cash trading account. A margin account requires a $2,000 minimum deposit. If you are looking to switch to Ally from another brokerage, they are currently crediting any transfer fees other brokerages may charge, up to $150 if you transfer $2,500 or more.

Ally has come a long way since I had opened a high-yield savings account there years ago. They went from doing auto loans to offering banking services and CDs, to home loans and now free investing.

Charles Schwab

Charles Schwab has something for everyone. Beginner investors will like their zero opening deposits, no account minimums, and zero maintenance fees for brokerage, retirement, and small business retirement accounts. Advanced and frequent traders can save money from $0 commission online trades for stocks, ETFs, and options. Passive investors can choose from over 4,000 no-load, no-transaction-fee mutual funds.

Traders can choose to place trades via the website, using the Schwab mobile app, or through the StreetSmart Edge desktop software.

People who are looking for a bank, Charles Schwab Bank has no minimum opening deposits, monthly fees, or minimum balance requirements. They will also rebate ATM fees when using any ATM worldwide.

Too busy to manage your portfolio? Charles Schwab has that covered too with their robo-advisor that builds, monitors, and automatically rebalances your portfolio based on your goals.

For any questions or assistance, Charles Schwab has 24/7 phone support, live chat, email support, and over 345 branches in 46 states.

E-Trade

E-Trade was founded in 1982 and is a full-service online brokerage that now charges $0 in commissions for stock trades, ETFs, and options. There are no annual or inactivity fees.

E-Trade offers something for everyone, from brokerage accounts, retirement accounts, small business retirement accounts, banking services, and even professional money management through automated investing to professionally managed portfolios with a dedicated financial consultant.

Investors can invest through three trading platforms and two mobile apps. Beginner investors can find all the help they need thanks to a large library of educational resources. Options traders will benefit from E-Trade’s acquisition of OptionHouse in 2016 and lower contract fees (from $0.65 to $0.50 per contract) if they make more than 30 trades in a quarter. Passive investors can choose from a large selection of over 4,400 no-transaction-fee mutual funds.

Customer support is available by 24/7 phone, email, and online chat in addition to 30 local branches.

Fidelity

Fidelity’s stock, options, and ETF trading fees were neck-and-neck with Charles Schwab’s at $4.95 a trade, so it was no surprise when Fidelity followed in Schwab’s footsteps and dropped theirs to $0 too. Options contracts are $0.65 per contract.

Known for their 3,500+ no-transaction-fee mutual funds, Fidelity has made a lot of big moves in the past year. They got rid of many of their account fees and account minimums. Then they started offering a selection of Fidelity Zero index funds with no expense ratios and minimum investment requirements, which no other fund company has tried to match as of yet.

They have 24/7 support via phone, email, and live chat. Should you want to speak to someone face-to-face, they have more than 190 local branches in major metropolitan centers in most states. When I opened my Solo 401k at Fidelity over a decade and a half ago, I went to the local branch in my city and they were able to answer any questions I had and helped fill out the paperwork.

Interactive Brokers

Long popular with advanced traders and daytraders, Interactive Brokers now offers a lower cost option called IBKR Lite with unlimited commission-free trading of US stocks and ETFs. With IBKR Lite, you also get no minimum balance or maintenance fees, but a limited number of features compared to the IBKR Pro plan.

IBKR Lite users get access to placing trades using the client portal and mobile app. You are able to open individual, joint, trust, and retirement accounts under IBKR Lite, along with being able to designate accounts as cash or available for margin trading. You can upgrade your account to IBKR Pro or downgrade back to Lite if you choose.

When I was day trading, I used what is now the IBKR Pro version. This gets you access to their smart routing that gets you the best price execution, and their TWS software with charts updated in realtime and extremely quick order placement with a couple of keystrokes.

Just2Trade

Just2Trade is a discount broker that has been around for decades and was advertising stock trades for $2.50 a trade until all the other major brokerages went commission-free. To compete, Just2Trade created the J2T Lite platform with commission-free trading for stocks and ETFs. However, J2T Lite does not include commission-free trading of options, OTCBB, Pink Sheets, GTC orders, or extended hours trading.

Beginner investors and occasional traders might want to consider the other brokerages on this list due to the large minimum balance to start trading. There is a $2,500 minimum to open an account, and trading access is disabled if the account value drops below $2,000.

There is also an activity fee of $15 per quarter unless five trades have been placed or your account has a balance of $50,000.

M1 Finance

M1 Finance is a robo-advisor launched in 2015 that is similar to alternatives such as Wealthfront and Betterment, but with more control. After you’ve created an account, you can choose from over 80 pre-made portfolios or create your own customized portfolio using individual stocks and ETFs. M1 Finance will then automatically maintain your allocations through regular rebalancing and automatically buying your investments with your new contributions.

Unlike other brokerages, where you might have money left over in cash earning you no interest, M1 Finance keeps you fully invested in the market by using fractional shares.

M1 Finance’s Core M1 Account offers no trading commissions, no management fees, and a free checking account. The M1 Plus Account is $125 per year and adds 1.5% interest to the checking account balance and 1% cashback on debit card purchases.

There is no minimum initial deposit, but there is an inactivity fee if an account has less than $20 and no activity for more than 90 days.

Robinhood

Founded in 2013, Robinhood grew extremely fast among cost-conscious Millenials by offering free trades paired with a simple easy-to-use mobile app for iOS and Android. They signed up 3 million investment accounts by in early 2018. By the end of 2018, CNBC reports Robinhood had grown to over 6 million users, eclipsing E-Trade, a much more venerable online brokerage.

Robinhood doesn’t require an account minimum to open an account, and there are no annual or inactivity fees.

Users can choose from three different types of investment accounts – Robinhood Instant, Robinhood Gold, and Robinhood Cash. Robinhood Instant is a margin account with access to up to $1,000 in instant deposits so you won’t have to wait to start trading while your funds transfer. Robinhood Gold is similar to Instant with more buying power and larger instant deposits.

Tradeable securities offered by Robinhood includes stocks, ETFs, options, and cryptocurrency.

TD Ameritrade

TD Ameritrade was founded in 1975 and is a publicly-traded online broker with almost 12 million customer accounts as of 2018. Each day TD Ameritrade executes over 800,000 customer orders and as of October 2019, stock, options, and ETF trades are commission-free.

TD Ameritrade customers have access to a wide variety of investment choices. In addition to stocks, options, and ETFs, you also have access to mutual funds, futures, Forex, bonds, annuities, cryptocurrency trading, and even IPOs.

The brokerage firm has a selection of more than 500+ commission-free ETFs from leading providers and over 4,000 no-transaction-fee, no-load mutual funds to choose from.

TD Ameritrade offers an extensive suite of education and research tools for beginners. They even have a trading simulator for users to practice trading using virtual money.

Customer support is just as comprehensive. You get 24/7 phone support. You can chat with TD Ameritrade through Facebook Messenger, Twitter Direct Message, and even by text. Those looking to speak with someone in person can find 275+ branches nationwide.

How Is Free Trading Possible

Charles Schwab’s CFO says cutting commissions will cost the company as much as $100 million in quarterly revenue. The reason why they are throwing away all that income?

You can thank the growing popularity of fintech startups like Robinhood and M1 Finance, who were dangling the perk of free trades to attract new customers. Everyone loves free stuff and saving money. After all, the more money you can invest, the more and faster it grows.

For Schwab, trading revenue was just 3-4% of their total net revenue. However, trading commissions made up 16% of E-Trade’s and 25% of TD Ameritrade’s yearly revenue. Charles Schwab’s move to zero commissions had less of an impact on their bottom line than their next closest competitors.

Schwab’s CFO noted that commissions were headed towards zero and it made sense to make the switch now rather than wait. Waiting will only let the new competitors in the space get bigger and stronger as they build up customers.

Rather than using trading revenue to make money, Charles Schwab will earn money through interest or their other products such as Schwab mutual funds, credit cards, private client services, annuities, and margin lending.

Charles Schwab will use commission-free trades as marketing to sign up more customers, which means more money under management. The last time Schwab lowered their commission fees in February 2017 from $6.95 to $4.95, their assets under management grew from $2.92 trillion to $3.72 trillion according to a company spokesperson.

With the cash balances from deposits and uninvested funds sitting in brokerage accounts, Schwab can pay a small amount of interest to their customers, take for example the 0.23% APY interest yield from their “high yield” investor savings account compared to the 1.80% Ally Bank currently offers on their online savings account, and then loan that money out at higher rates.

Another way brokerages can make money by offering commission-free trading is to get paid for payment order flow. The brokerage gets a small fee for providing the order, maybe a fraction of a cent per share, and the market maker or exchange that pays to execute the order benefits from the additional volume and they can use the data to determine where the direction the market is heading.

The True Benefit of Free Trades Besides No Fees

Everyone dropping trading commissions takes away the pricing advantage newcomers like Robinhood and M1 Finance had on using cost to compete. This is a good thing. Startups and established brokerages alike will now need to provide better customer service and features or people will sign up with their competitors.

Right now if you go to Robinhood’s site, the only way to contact customer service is to fill out an email form. And then you wait for a response. And wait even longer… There are stories online from people who tried calling Robinhood’s phone support and got an automated message to email them. When there are thousands of dollars on the line and time is of the essence, not being able to speak to someone immediately can be costly.

Closing $ense

Charles Schwab going commission-free is a really smart idea. Trading commissions have been dropping for years. I can see the number of trades being placed to increase as people embrace trading without fees. Brokerages with free trading may have lost one revenue stream, but they will be able to make up some of it in order-flow payments. Expect more services from the financial firms as they move into banking, credit cards, and other products.

As an investor, free trades is mostly a good thing. You benefit from all these brokerages competing for your business. However, there are a couple of things to be wary of. If you do sign up for any of the above brokerages, try not to leave too much cash sitting around earning you minimal interest. Also, avoid the temptation to day trade unless you are extremely disciplined. Or you could find your investment returns suffering from not thinking about your investing strategy thoroughly.

What do you think about Charles Schwab, E-Trade, TD Ameritrade, and other brokerages offering commission-free stock trading? Are there other firms with free trading not listed above that you recommend?

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