A new commission-free stock-trading platform debuts today, one which my fellow Foolish contributor Rick Munarriz wrote about here and here. While he's fairly sanguine about the business prospects for Zecco, I'm rather excited about the money-saving potential for individual investors.
One of the more frequent questions we get at Motley Fool Hidden Gems, our small-cap stock investment service, is how a new investor with relatively little money to put into stocks can get the most bang for the buck. In short, which are the best low-cost brokerages out there that won't eat up an investor's portfolio with fees and commissions?
The short answer has always been to look at the deep-discount brokers, companies like TD Ameritrade
At The Motley Fool, we encourage investors to be long-term business owners, not short-term day traders. Inactivity in an account is a good thing from a Foolish perspective, but obviously not from the brokerage's point of view. Even if they're charging you $5 for a trade, the more trades you make, obviously the more commissions they'll make.
That's where Zecco's business model seeks to differentiate itself. Because it will offset the lost commissions through paid advertising using Google's
Still, Zecco gives the impression of more than a simple bare-bones operation, like the commission-free FreeTrade site Ameritrade had set up and then shut down shortly thereafter, shuttling customers to its Izone trading platform that offers $5 commissions. Yeah, better than the $10 Ameritrade charges, but not as good as free. I signed up for a free account at Zecco just to give it a test run, and my initial impression was favorable. Obviously, I couldn't trade on it, so I can't comment on the speed of trade execution or how wide the spread is on trades or rates charged on margin interest and such (a lot will be unveiled today), but for investors just starting out and looking to take their financial future into their own hands, Zecco seems like a good deal.
If you're not looking for hand-holding when buying or selling a stock, then the deep discounters are a good deal, and a commission-free site sounds like a great one. You do need $2,500 to open an account, but you get 40 free trades a month and the additional frills thrown in.
With deep-discount brokers already feeling their margins being squeezed, they must be looking with trepidation at a site like Zecco grabbing investors' attention. Last month, E*Trade reported that August's trading volume was down 7.5%, while Ameritrade was off 7% month to month. While ugly, it wasn't necessarily unexpected, as August was seen as a slow month to start, and it was better than the 9% and 12% declines registered at TradeStation
If it's free, it's for me, and I plan to be looking more closely at this service with an eye to switching my accounts over to it. There may be no such thing as a free lunch, but free stock trades are a good, close second.
Take a free gander at these related Foolish articles:
Motley Fool Hidden Gems regularly advocates keeping transactions' cost below 2%. Free definitely falls in that range. Take a 30-day free trial to see what other recommendations Hidden Gems has made, like its stock picks that are beating the market by 17 percentage points.