What are Commissions
According to Investopedia, “A commission is a service charge assessed by a broker or investment advisor for providing investment advice or handling purchases and sales of securities for a client.” Commissions are commonly charged when day trading OTC (over the counter stocks listed on the pink sheets and grey sheets because they are unqualified to trade on the listed exchanges such as NASDAQ, NYSE and AMEX). Commissions used to be a necessity to day trade stocks online but over the years certain stock brokers have revolutionized the market by offering the opportunity to trade with zero commissions, particularly on listed exchanges.
Before the Commission Free Trading Era
Many brokerage firms used to charge anywhere from $4.95 to $7.95 per entry and per exit before the beginning of commission free trading, when I first began day trading two years ago. With the change in the way brokerage firms conduct business, firms such as TradeZero now offer the opportunity to trade commission free trading on listed stocks providing certain terms and conditions are met. This can save a day trader a lot of money which is especially important for new day traders starting their journey and allows experienced day traders to hold on to a little more of their profits. There are still fees that must be paid due to working with the exchanges but commission free trading works out to be much lower in cost.
The Pros of Commission Free Trading
As a result of commission free trading with TradeZero, I can trade a lot more which has significantly improved my ability to venture into both the long market and the short selling world. Commission free trading makes a world of difference. For accomplished traders, commissions are less of a worry, but after following a few on social media I started seeing top traders make the move to commission free brokers because they didn’t want to lose that extra money they didn’t have to pay in order to day trade.
I used to hear some teachers say that the price of commissions were “worth it.” In my experience over the years and after watching top traders make the change I now feel the idea of “paying for service” is not true in this specific case.
With this frustration, I also switched to a commission free broker to trade stocks online.
The Cons of Commissions
Before commission free trading became popular, I could consistently make % gains on trades but still close red at the end of the month. Even though my trading was profitable, the cost of commissions outweighed my dollar profits.
The frequent big question I faced as a new day trader was: “how much must I trade with in order to cover the cost of commissions if I make a profitable trade and how much am I willing to lose if the trade doesn’t work out?” This was a major account drainer when I first began.
Taking the time to calculate those costs took a lot of time since I am not the best with math. Luckily, I had a friend help me build a spread sheet to calculate the dollar amount I wanted to trade with based on entries and risk levels that calculated the dollar amount and share size to enter with. The calculations took away precious time to make quick entries. Fortunately, I no longer need to use it.
My conclusion on commission free trading
Commission free trading is an incredible milestone for day traders. It provides more opportunities for growth because it empowers the day trader to practice new patterns for both new and experienced day traders. Day traders already pay a good portion of taxes and before the commission free revolution, day traders had to spend even more again because of commissions.
Commission free trading has made a big improvement in my trading career. As a learning day trader, commission free trading enables me to take more trades when I recognize a familiar pattern, not worry if I don’t get filled on a full position and still be able to keep my profits when I win a trade using small size.
References
TradeZero | Website (August 31, 2022) https://us.tradezero.co
Investopedia | Website (August 31, 2022) https://www.investopedia.com/terms/c/commission.asp
TradeZero | Fees (August 31, 2022) https://us.tradezero.co/pricing
Disclaimer
This content (“Content”) is produced by Tessa Lamping. The Content represents only the views and opinions of Ms. Tessa Lamping. Ms. Lamping’s trading experiences and accomplishments are unique, and your trading results may vary substantially. TradeZero does not endorse the Content and makes no representations or warranties with respect to the accuracy of the Content or information available through any linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Ms. Lamping is compensated by TradeZero for producing the Content and may also receive compensation for customers she introduces to TradeZero.
TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc., a registered broker-dealer and a member of FINRA and SIPC; TradeZero Inc., a dealer registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, an IIROC member firm and member of CIPF.