The future of stock trading is here. While traditional stock trading applications take a commission on every trade made, in an appeal to millennials and younger age groups, that’s starting to change.
Now, stock trading applications are going commission-free. This is great for younger groups, as common traders pay hundreds of dollars every year thanks to commissions. On top of this is maintenance fees and other annoying charges that turn people off of investing entirely. When it comes to commission free stock trading apps, we’ve found that the eToro stock trading app by far beats all other apps in the market. In this guide, we’re going to present to you the best commission free stock trading apps for 2019 and beyond.
- 1 What is a commission free stock trading app?
- 2 How We Rated These Stock Trading Apps
- 3 Top 5 Free Stock Trading Apps for 2019
- 4 How do free stock trading apps make money?
- 5 How safe are free stock trading apps?
- 6 Tips for choosing a commission free stock trading app
- 7 How much money can I save by using a free stock trading app?
- 8 Are there any other costs in trading stocks with an app?
- 9 Conclusion
- 10 FAQs
What is a commission free stock trading app?
A commission free trading app is very similar to a traditional stock trading application like Fidelity or TD Ameritrade. However, those applications charge a fee for every trade made on the platform. This used to work, back when the economy was a little bit different. Now, younger people, the millennials, don’t have nearly as much money to invest. To get these age groups involved, newer applications like Robinhood removed this commission fee, both lowering the risk on and streamlining the investment process.
Top 5 Free Stock Trading Apps for 2019
Just because a stock trading app is commission free doesn’t mean it’s worth using. Some traders are more experienced, and know to research stocks on their own, alongside the best ways to find that information, while others want that data in-app. On top of this, the right choice depends on how often someone wants to trade, how much they have to invest at the start, and how much they want to commit to this long term. In the following list we will present the best free stock trading apps acccording to our tests, which should help you find the best tool for your needs.
How do free stock trading apps make money?
Stock trading applications charge commission fees so they can make a profit. If apps stop doing that, how do they bring in money? Well, a few different ways. We’re going to use Robinhood as an example.
Launching in 2014, Robinhood took off due to its lack of commission fees on transactions. In comparison, many stock trading apps charge anywhere from $1 to $7 per trade, according to Investopedia. That said, these alternate platforms provided a ton of information regarding the stock such as news, charts, research, and more, which Robinhood failed to do at the start. While this sounds like a negative, the app used their lack of data to its advertising advantage, claiming that the information provided by these stock trading apps was overrated and not worth the fees.
How else do free stock broker apps make money?
One way free stock trading apps including Robinhood make money is via gathering interest on stored cash in investor accounts. That’s actually a traditional method of profit for these platforms. On top of this, Robinhood charges $10 for every phone-assisted transaction made, on top of $35-50 for foreign trades.
In addition, according to a blog post by Robinhood co-founder and co-CEO, Vlad Tenev, the company earns rebates for every dollar traded. This is best explained through a quote from co-CEO Vlad Tenev:
“The revenue we receive from these rebates helps us cover the costs of operating our business and allows us to offer commission-free trading. Robinhood earns ~$0.00026 in rebates per dollar traded. That means if you buy a stock for $100.00, Robinhood earns 2.6 cents from the market maker. Other brokerages earn rebates and charge you a per-trade commission fee.”
A third way is through order flow. This process is based on small orders that are difficult for a broker to fill. So, the application sends this order to a dealer, who pays the application a fee for this privilege. The dealer then takes commission from the order.
Bloomberg reported last year that Robinhood makes over 40% of its revenue thanks to order flow. This is a controversial method that sends “orders to market makers that allow you to receive better execution quality and better prices,” details the apps website. “Additionally, the revenue we receive from these rebates helps us cover the costs of operating our business and allows us to offer you commission-free trading.”
While it sounds ideal, this process isn’t entirely transparent. Most stock exchange transactions are processed in a public format, but this is done privately, which raises suspicion.
Finally, in the case of Robinhood, there is a premium service that charges different monthly fees. The application makes a significant profit from these payments, which investors are happy to pay for the added benefits. The premium service provides extra buying power in tiers of $1000, $1,500, and $2,000. These come in at $6.00, $9.00, and $10.00 a month, respectively.
Robinhood is still a relatively new stock trading application. While these no-commission trades have proven invaluable for bringing in customers, we’ve yet to see how the app will survive in the long run. If its methods of profit are sustainable, we may be witnessing the birth of a new form of stock trading.
How safe are free stock trading apps?
When it comes to online trading, one of the most important things to consider is platform safety. We would not recommend investors to trade on unregulated platforms due to the fact that it could pose serious risks to your capital. Many unregulated cryptocurrency exchanges get hacked on a weekly basis, most recently Binance with over 7,000 bitcoins stolen on May 7th 2019. However, these security concerns are not limited to crypto exchanges, and stock brokers are susceptible to such hacks or data breaches. Although most registered mobile trading apps feature a good variety of security measures, security risks persist.
For this reason, we would recommend trading stocks on a platform which holds several financial regulations such as eToro, and which is reputable, with a large user data base. eToro currently counts with over 10 million investors and has never suffered a security hack. We would therefore highly recommend all stock traders to get started with the eToro app in order to have a safe stock trading experience.
How much money can I save by using a free stock trading app?
You can save a surprising amount of money by trading on a commission free app. Of course, it depends on the platform, but say you’re paying $5 per trade. Once or twice that’s fine, but if you trade 10 times that’s $50 dollars. This money would be way better off in the stock market making you money, rather than spending it trying to invest.
Are there any other costs in trading stocks with an app?
Yes, there actually are other costs in trading. That said, commissions are the most common ones. But it’s good to know the other types.
For example, there’s a such thing as “margin interest”. This is when an app charges an investor who trades with borrowed money, otherwise known as “on margin”. Depending on the application, you’ll have to pay a variety of different annual percentage rates based on how much you borrow.
Then there’s taxes. Don’t forget that you must pay taxes on all of your different investments, and short term investments are taxed higher than other capital gains. Moreover, some of these applications charge “fund expenses,” which is taken from your profits automatically. This ensures the platform can keep running commission free.
If you’ve read our guide from start to finish, you now have a solid understanding of what works in a commission free stock trading app. Each of these applications provides a different experience a little unlike the rest of them on the list. Hopefully, our guide helped you in your decision-making process, and you’ll find one that gets you started and staying in the world of investments. We would recommend eToro out of all of these as they offer low stock trading fees, a user friendly interface with a very interesting Copy Trading feature ideal for beginners, and more importantly are regulated by several financial authorities which means your funds will be safe. Click the link below to get started. Happy stock app trading!
It all depends on your stock trading needs. Take a closer look at the reviews up above to decide which application is best for you!
The charges vary from application to application. While none of these listed have commission fees, there can still be some other charges. For example, M1 Finance has a $100 initial charge to get involved. Make sure you can pay for these fees ahead of time.
All sorts of different assets. Some applications support traditional stocks, while others bring Options, ETFs, and even cryptocurrencies.
All stock trading is risky. You never can truly predict what will happen with a company or its stock price. In this market, there’s the mantra of “don’t invest what you aren’t afraid to lose.” Stick with that and you’ll always be at a managable level of risk.
Because there isn’t a commission fee on trades, it’s much easier for investors to diversify their portfolios. Without a fee, you’ll be much more willing to invest into different stocks you wouldn’t normally have done so beforehand. Some applications like M1 Finance do the dividing for you. All you have to do is provide the funds!
Nope! Commission free means just that. However, there are some additional fees that we cover in the “Are there any other costs in trading?” a few spots above this. These aren’t “hidden” per se, but they’re important to know ahead of time.
In some ways, yes. For example, a lot of these applications are fairly basic and only provide an elementary look at stock trading. That said, they’re also a great way to start stock trading, as they save you money and only focus on the essentials. However, if you’re looking to become an advanced trader later on, you’ll want to move over to more traditional applications once you get the hang of things. Just make sure to find one with low commission fees!