When is it best NOT to believe what you read about No-Commission Investment Trading?
When it sounds too good to be true.
In the Press
There has been a lot of press recently about “Robinhood”, “Wealthsimple” and other no-commission trading platforms. Robinhood’s marketing message revolves around the lack of fees charged to buy and sell stocks plus how it opens the stock market to new and smaller investors.
” Now anyone can invest in stocks without having to pay $5-8 each time they make a trade.”
Sounds great right? Sure it does but what is the catch?
Don’t Believe Everything You Read. We did some research and found out the following information.
According to Robinhood’s recent IPO filings, which have opened their business models in order to see what is “under the hood”, here is what they found:
Robinhood makes 75% of their revenue by selling all their client’s orders to other financial institutions rather than directly on the open market. These are known as ‘market makers’.
These market makers can usually execute the trades at a better price or manipulate the executions to their benefit. This means that the savings are going to places like Robinhood and NOT the individual investor. This ends up costing the investor more than the cost of the trading commission.
It can end up costing you MORE using these no-commission investment trading platforms.
The risk and the inherent conflict of interests are why jurisdictions such as the U.K. banned such practices in 2012.
More specifically, the United States Security and Exchange Commission charged Robinhood in December of 2020 for executing orders at prices inferior to other brokers. They were levied a $65 million fine.
If you are interested in learning more about no-commission investment trading & better ways to invest, you can set up an appointment at https://calendly.com/mjhfinancial/meeting. We can discuss how to get your investments back in line.
Read more about Investment Fees here