Why Competition Between Stock Brokers Is Good For Investors
James Woolley
February 08, 2011
In this day and age there are quite a few people who have lost faith in financial advisors and decided to make their own investment decisions instead. In short, they want to be ultimately responsible for any profits or losses that they make. Thanks to the internet this is now an option that we all have.
Things have changed so much in the last 10 or 15 years. I can still remember a time when you used to have to get on the phone to your broker if you wanted to buy or sell some shares. This was quite expensive as well because the fees were substantially higher than they are today. As a result, you couldn't really invest small amounts because the fees would simply be overbearing in percentage terms.
As I say, though, things are a lot different these days. Thanks to the internet there are hundreds of different brokers fighting over themselves to sign up investors such as you and I. This has driven prices lower and lower over the years and they are now very cheap as a general rule.
Take TradeKing for example, who are one of the major brokers in the US. They charge a flat fee of $4.95 for each share transaction at the time of writing. So even if you were to trade small amounts, this would still be a relatively small fee that you have to pay in percentage terms.
I'm sure prices will continue to fall slightly in the future. We have already got to the stage where Zecco, one of TradeKing's biggest rivals, is offering completely free trades to frequent traders and customers who hold large account balances.
These lower transaction costs can only be a good thing for private investors. However it shouldn't necessarily influence your investment strategy. For instance you shouldn't start buying and selling shares all the time in order to take advantage of these low prices or to qualify for free trades, for example, because this is just asking for trouble.
Instead you should just be thankful that we are living in an age when we can enjoy these low costs. It hasn't always been like this. What it does mean is that you get to keep a large percentage of your overall profit when you come to sell some stocks because of these low costs, which has to be a good thing overall.
Things have changed so much in the last 10 or 15 years. I can still remember a time when you used to have to get on the phone to your broker if you wanted to buy or sell some shares. This was quite expensive as well because the fees were substantially higher than they are today. As a result, you couldn't really invest small amounts because the fees would simply be overbearing in percentage terms.
As I say, though, things are a lot different these days. Thanks to the internet there are hundreds of different brokers fighting over themselves to sign up investors such as you and I. This has driven prices lower and lower over the years and they are now very cheap as a general rule.
Take TradeKing for example, who are one of the major brokers in the US. They charge a flat fee of $4.95 for each share transaction at the time of writing. So even if you were to trade small amounts, this would still be a relatively small fee that you have to pay in percentage terms.
I'm sure prices will continue to fall slightly in the future. We have already got to the stage where Zecco, one of TradeKing's biggest rivals, is offering completely free trades to frequent traders and customers who hold large account balances.
These lower transaction costs can only be a good thing for private investors. However it shouldn't necessarily influence your investment strategy. For instance you shouldn't start buying and selling shares all the time in order to take advantage of these low prices or to qualify for free trades, for example, because this is just asking for trouble.
Instead you should just be thankful that we are living in an age when we can enjoy these low costs. It hasn't always been like this. What it does mean is that you get to keep a large percentage of your overall profit when you come to sell some stocks because of these low costs, which has to be a good thing overall.
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