The Rise of Commission-Free Stock Trading: What Investors Should Know

There is no denying that the world of investment has dramatically changed over the past decade. With that set, one of the biggest shifts has been made towards commission-free trading. This aspect perfectly explains that stock trading used to be costly; however, today it has become accessible to almost anyone with a device.

This transformation has opened new opportunities and encouraged more people to participate in the stock markets. This aspect has also really shaped how brokers operate. However, before you jump in, you must understand what this trend means and how it can impact your investing decisions.

Keep reading!

Commission-Free Trading – What Is It?

In reality, many newbie investors learn about commission free stock trading when browsing popular brokerage firms online. They might as well come across the term when browsing financial apps. If you are in a similar situation, you should know that this term means that you can buy or sell stocks without paying the transaction fees. In the past, traditional brokers used to charge transaction fees.

However, today's model makes it easier for beginner investors to invest in stocks with small amounts. Leveraging commission-free trading, you can also experiment with different trading strategies, which enables you to feel confident without worrying about extra charges.

You can also benefit from using platforms, such as SoFi, which provide educational tools apart from commission-free trading.

The Popularity of Commission-Free Trading

You must be wondering about the increase in interest in commission-free trading, which actually started when competition between brokerage firms got intense. As it usually goes with competition, each trading platform tried to attract more users, which is why the fees dropped, eventually reaching the point of no Commission fee at all.

At the same time, the increase in mobile app users made investing incredibly easy. With that said, accessibility, convenience, and the elimination of potential barriers encouraged countless new investors to enter the trading market.

How Do Brokerages Make Money

Now, you might wonder how brokerages make money without commissions. You should know that trading platforms stay profitable as brokerages rely on other revenue streams now, such as interest on uninvested cash, payments for order flow, and margin lending. These practices are generally safe and regulated. What this means is that as an investor, you must still understand how your selected platform operates so you can make informed trading decisions.

Potential Benefits of Commission-Free Trading

There is no denying that commission-free trading has actually leveled the playing field, as new investors can start trading with smaller amounts. This aspect enables newbie traders to diversify their investing portfolio at a lower cost while enabling them to test various strategies without having to worry about high fees.

What this means is that now investors, especially long-term investors, can take advantage of the ability to make frequent contributions and adjustments without incurring fees. This aspect significantly leads to more savings over time.

Nonetheless, it is in your best interest to keep some potential downsides in your mind too, such as the fact that commission-free trading comes with its own set of risks.