I know that some major brokerages (Schwab and others) have been offering zero commission stock trading in the US market for a while now. I live in Europe and if possible, would like to switch to a broker that allows trading US stocks at zero commission. Can anyone point to a list of brokers that offer this zero commission trading for international customers? Only reliable ones, so not robinhood and the likes.
Are you an active trader or more of a longer term swing trader or even buy/hold investor? Free is never really free so with these zero commission structures you will give in on order execution and you will probably end up paying more than what the commission would be. Zero commission could be interesting for swing or buy and hold since a few cents in execution difference doesn't really matter if your time frame is bigger and targets are much larger, however if you are an active trader/scalper with smaller targets every cent can make the difference.
I haven't been doing much active trading because of costs, but with these zero commission offers, I'm thinking of more active strategies (entering and exiting a position during the same day). I've backtested some strategies, and they would not be profitable with high trading costs, however, zero commission would change the game. Can you please explain a bit more thoroughly what you mean by giving in on order execution and what are the hidden costs of the zero commission plans?
When you are using a zero commission broker they sell your orderflow to HFT's which will take advantage of your this information to make a quick profit of your orders and you will be filled at a higher price. The question is will this difference in execution cost you more than just paying commission.
Is this all zero commission brokers (including Schwab), or just the smaller ones? I've heard robinhood does this. What if I place a market order, wouldn't I automatically get filled at the current bid/offer price? Or how exactly does selling orderflow affect the price I'd be getting?
"Brokers like Schwab and other companies also make money from payment for order flow. The way it works is that professional trading firms buy the retail-investor orders from the broker and execute the trades for them. These trading outfits typically make money from the gap between the bid and the offer. When the trading company buys order flow, they give some of that money (the rebate) to the brokerage that provided the orders." "A market maker that buys retail flow takes on less risk and should be able offer better prices as a result. By going off exchange, market makers can also avoid having to compete with other sophisticated traders. But some, like former SEC chairwoman Mary Jo White in a 2014 speech, think paying for order flow could create conflicts of interest. A broker may be tempted to send trades to the market maker that offers it the best rebates, instead of the best stock trade execution for the customer, the thinking goes." -- It's all a bit of a grey area in my opinion, you don't know if you would have been better of to execute your trade without your order flow was being sold but you also don't know if you are really getting a good deal by not having to pay commission. I prefer to stick with knowing what i am getting/paying. I am also from Europe and i don't think there are brokerages offering zero commission in the EU for now, but i wouldn't want it anyway. For the reason mentioned before and also because most of the platforms they offer along with zero commission have restrictions compared to their full versions. I am not saying it is bad for everyone, if you are swing trading or buying and holding costs aren't as important as when you are doing short term trades, so if you are doing that and don't need all the bells and whistles from a platform, go for it. However if you are scalping every cent can make the difference, if you are executed 1 or 2 cent worse because of the order flow being sold you are losing more than you would have paid on commission. The major downside in my opinion is that you just don't know what is happening, do i get a better deal or not by not paying commission? I don't know. I prefer to know so that i can find a solution for my problem if i need to, how are you going to improve on something you don't know anything about? I do know my commission rate so i can work with that.
Thanks for this info. Just to clarify, does selling the order flow imply that if I place a market order to buy a stock, the HFT firm immediately front runs the order and buys that stock at the offer I would have expected to get? Or did I misunderstand the way this works? Do other brokers, which charge commissions, guarantee that no order flow selling or front running takes place? How does the execution process differ exactly from zero commission brokers?
1. We don't know, but probably yes. They can either execute the trade for you without front running or front run your order and make a small profit from doing so. Since these firms are paying for your orderflow and they also need to make a profit, i think they most likely will front run your order. How else are they going to profit from that deal. 2. If you want details about order execution from a specific broker you should ask them directly. I have no idea how all brokers work.
I noticed that Interactive brokers also offers zero commission US stock trading. Is there a catch there too (they are not selling to HFTs, are they)?