The True Cost of Zero Commission Brokers

TLDRZero commission brokers may save you money on trading fees, but there are still costs involved. In addition to bid-ask spreads, there are fees for foreign exchange and payment for order flow. Traders are also incentivized to trade frequently, which can lead to impulsive and costly decisions. Understanding these costs is essential for informed investing.

Key insights

💲Zero commission brokers do not charge fees for trading, but there are still costs involved in investing.

🔄Bid-ask spreads can eat into your returns, especially for small-cap positions and derivatives.

Q&A

Are zero commission brokers really free?

—While they do not charge commissions, there are other costs involved such as bid-ask spreads and fees for foreign exchange.

What is payment for order flow?

—Payment for order flow is a practice where brokers route client trades to market makers, creating a potential conflict of interest.

Timestamped Summary

00:14Zero commission brokers have gained popularity among investors due to their lower trading fees.

04:59Foreign exchange fees can add up when trading stocks in different currencies.

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