After writing about the promise -- and potential flaws -- of Zecco.com's model that will provide commission-free stock trades in two weeks, I was asked about last year's demise of Freetrade.
Allowing investors to execute as many as 20 commission-free trades per month, Freetrade.com had a faithful following on our discount-broker discussion board. And Freetrade wasn't some renegade independent -- it was a sharp move by Ameritrade (NASDAQ:AMTD), which, along with its Izone platform providing $5 stock trades, was simply keeping up with the penny-pinching game. If rival discounters such as Charles Schwab (NASDAQ:SCHW) and E*Trade (NYSE:ET) were to engage in a price war, Ameritrade could be there waiting at various price points.
Yet in April 2005, Ameritrade shuttered Freetrade and transferred the active accounts to Izone. Many fans of the service were left scrambling for other alternatives.
I didn't see the point of such a service in this day and age. It may amount to heresy, but I believe that there is more to stock trading than shaving a few bucks off your stock commissions.
It wasn't always that way, though. In the early 1990s, I was the treasurer of one of the first online investment clubs. Genie Online Discoverers was the third club to form in cyberspace. It disbanded two years ago. Because we were buying stocks a few hundred bucks at a time, commissions were important. Our choices were limited back in 1992. We eventually went with Schwab. The minimum commission was $35 at the time, but we received a 10% discount by trading through General Electric's (NYSE:GE) now-defunct GEnie service. These days, Schwab and its peers offer trades for as little as a third of what my former club used to pay.
So much goes into choosing a broker -- things like customer service and order execution -- that simply staring at a comparison table may be a good starting point in your search for a broker. But it shouldn't be the only factor.
Actually, if low or no commissions encourage you to trade more frequently than you normally would, you may be doing your portfolio more harm than good.
I'm still intrigued by next month's launch of the Zecco platform. Unlike Freetrade, Zecco is relying on serving up Google (NASDAQ:GOOG) ads to help offset its costs. I already singled out the imperfections in the model, but at least it is not simply trying to replicate the Freetrade experiment.
Just be careful out there. I don't need to tell you that there is no such thing as a free lunch.
Charles Schwab is a Motley Fool Stock Advisor recommendation. Check out Tom and David Gardner's market-beating newsletter service free for 30 days.
Longtime Fool contributor Rick Munarriz has been trading exclusively through discount brokers since 1990, but he does not own shares in any of the companies in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
