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What Is a Zero-Commission Online Stockbroker?

by | Futures 101

The world’s equities markets are deep and diverse, each filled with countless opportunities. Among these venues is the leader of the pack, the U.S. stock market. Featuring the New York Stock Exchange (NYSE), NASDAQ, and the over-the-counter (OTC) market. American stocks are worth more than $50 trillion (2021).

What Is a Zero-Commission Online Stockbroker?

A discount brokerage service is a firm that offers its clientele market access at lower rates than competitors. First conceived by Charles Schwab in 1975, discount brokers offer traders lower commissions and fees in return for a “scaled-down” service suite.

The modern version of the discount broker is the zero-commission online stockbroker. A zero-commission equities broker is an outlet that provides its clientele with stock market access without a fixed cost or “commission” assigned to making trades.

Traditionally, every time a trader buys or sells a stock, a broker collects a fee (commission) for facilitating the transaction. Historically, these commissions equated to hundreds of dollars per trade. In fact, Charles Schwab “disrupted” the industry by charging a “bargain” commission of $70 per trade!

Now, zero-commission brokers have become the norm on Wall Street. Retail traders no longer have to pay anything to buy and sell stocks. Of course, the privilege comes with a few unique advantages and disadvantages.

Advantages

There’s no doubt about it: The 0 percent broker has revolutionized the equities trading and investment industry. Two big advantages of the business model are:

  • Affordability: It doesn’t get much cheaper than free! Although there may be assorted fees related to data, analytics, margin, and so on, placing trades with a 0 percent broker is inherently affordable.
  • Ease-of-access: Most 0 percent brokers offer user-friendly trading apps. You can trade from your mobile device or desktop at your leisure.

The zero-commission online stockbroker offers clients cheap, user-friendly market access. These benefits attract many equities traders and are the major reasons that 53 percent of all U.S. families participate in stock ownership.

Disadvantages

Zero percent stock brokerage services do have some disadvantages. The two primary ones are:

  • Equities pricing: The way that securities are priced through 0 percent brokers has been a hotly debated topic. To make up for not charging commissions, 0 percent brokers “mark up” stock prices, which increases spreads. Also, they sell customer orders to large funds, which can influence pricing.
  • Limited service suite: As a general rule, a 0 percent broker offers market access in a self-directed capacity. Accordingly, traders conduct their own analysis and place all orders. Furthermore, access to customer service may be limited to live chat or email communications.

If you’re an experienced,  self-directed trader, then the drawbacks of using a 0 percent brokerage are minimal. However, for market participants who are new to asset pricing and market analysis, working with a more hands-on broker may be a better course of action.

Opening a Zero-Commission Account

The evolution of the fintech industry has made opening a 0 percent equities brokerage account a snap. The process may be conducted via a brokerage website or trading app in a few simple steps:

  1. Select a broker
  2. Visit the appropriate website or download the app
  3. Fill out the online application
  4. Await approval
  5. Fund your account

From top to bottom, opening an account with a zero-commission stockbroker is a straightforward process. All you need is internet access, your personal information, a few minutes to fill out the application, and some risk capital. After completing the five steps above, you can be trading in only a couple of days (typically 1-7 days).

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

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