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Trading fees are at or near zero in the US now unless you mean capital gains.
by matwood 2y ago
Trading fees are at or near zero in the US now unless you mean capital gains.
- graemep 2y agoNot what I meant, but capital gains are another issue, but I am not in the US. In the UK we pay a 0.5% tax on ever transaction and often around £10 per transaction, so its quite substantial. I should probably have said costs, not fees. How much are total costs in the US? If you trade frequently even low costs add up. If its 0.1% and you trade monthly it ends up being 1.2% over the course of an year.
- matwood 2y ago10+/trade is going back to the early 2000s for the US. Now it's effectively 0 for most common trades. Here is Schwab for example: https://www.schwab.com/pricing https://www.schwab.com/pricing If someone is a big options trader they can probably find a better per contract price out there.
- graemep 2y agoHow do they profit? There must be a cost somewhere? Another reply mentioned spreads - still a cost (you lose money when you trade).
- matwood 2y agoAUM, managing high wealth clients, running their own funds with expense ratios (also some of the lowest in the industry), uninvested cash, etc... Retail trading is commoditized now. Anyone who really cares about spreads will be using limit orders. Otherwise you're talking about pennies on highly liquid shares. The fact that we're even discussing the possible spread differences between market makers shows just how commoditized retail trading has become.
- varelse 2y ago[dead]
- thefreeman 2y agothe sell order flow to market makers who gobble up the other side of bad retail trades
- graemep 2y agoWhich means that your cost is market maker's spreads instead of fees. Still a cost to you.
- kortilla 2y agoNope, this is one of the counterintuitive things about people paying RH for order flow. Market makers can offer tighter spreads when they know it’s a pool of dumb money.
- graemep 2y agotighter spreads are not zero spreads
- kortilla 2y agoWhat’s your point? The spreads are tighter than you would get on the open market. NBBO requires that if there is something better that Robinhood gives it to you.
- eru 2y agoI think the point is that if you trade, you pay the spreads. Market makers can help you pay narrower spreads, but you still pay them. If you just hold your index fund, you don't pay these recurring spreads.
- xen0 2y agoI highly doubt market makers are in the business of betting against retail traders. I suspect they're in the business of collecting the spread on lots of small trades that they can assume are largely random.
- eru 2y agoLow cost brokerages mostly earn money from the interest rate differential, ie what they pay from your un-invested balances vs what interest they pay you. They also earn some money from 'payment for order flow'.
- wil421 2y agoAll the major US brokers started doing free trades for stocks and etfs. For Vanguard, most of the index expense ratios are really low, like %.05 percent, but that’s not a trading fee.
- AdamN 2y agoEven for paid transactions that typically give better pricing (IBKR Pro), the prices are extremely cheap.
- 4ndrewl 2y agoHow do they make money from you as a customer?
- matwood 2y agoYou can Google it, but AUM at scale means .03% is a significant amount of money. There's also uninvested cash that the broker can invest in t-bills and take the spread.
- 4ndrewl 2y agoThanks for the lmgtfy :) I bet the uninvested cash product drives some weird incentives - kpis around increasing ratio of sells to buys and increasing pain around removing cash.
- tim333 2y agoQuite a lot of customers either have cash sitting in the account which they make interest on, or have margin debt which they charge for.
- 4ndrewl 2y agoInteresting, thanks. For a minute I was expecting someone to say "ads"
- jkolio 2y agoFront-running your trade.
- ifwinterco 2y agoYou also pay a spread every time you trade, especially if you're using a retail brokerage like robin hood that sells order flow to market makers. It doesn't show up anywhere in your statement, but it's a real trading fee nonetheless, so it's still better not to trade too much
- kortilla 2y agoRetail is offered tighter spreads because it’s safe to assume they have no edge at scale.
- maest 2y agoYou pay the spread and you also have impact in the market.
- intuitionist 2y agoIf you’re trading US large-cap stocks at low frequency these are not really material costs for even a wealthy retail investor. Certainly not next to taxes.
- eru 2y agoThe spread is a material cost, but the market impact is negligible for retail investors, yes.
- WalterBright 2y agoThe explicit fees are near zero, but if you watch your trade you always get an adverse price.
- pxx 2y agowhat are you talking about. you're not going to fill worse than nbbo