Commission-Free Trading Is Great For Everyone

| May 17, 2011 | 0 Comments

It’s amazing how quickly financial markets move these days.  Everything from stocks to commodities and even currencies are prone to dramatic swings.

Now more than ever, it’s essential for investors to stay flexible and manage risk.  No wonder investors are flocking to Exchange Traded Products (ETPs).

You see, ETPs are indexed funds that can be traded in your brokerage account just like a stock.  They include stocks funds (ETFs), exchange traded notes (ETNs), and even funds based on other assets like commodities and currencies.

ETPs give investors an easy way to diversify and make changes to the portfolio at a moment’s notice.  And they’re fast becoming the investment vehicle of choice for institutional and retail investors alike.

Consider this…

Investors have more than $1 trillion in ETPs… And billions of new dollars are pouring in every month!

To get a better idea of how popular ETPs are, just look at what’s going on at Charles Schwab (SCHW).  Last year they introduced commission-free trades for Schwab ETFs.

As a result, interest in their ETFs skyrocketed.  Schwab ETF assets shot up from $516 million to more than $3 billion!  That’s more than a six fold increase in a year.

Clearly, investors are itching to trade ETPs.

And heavy investor interest is creating a firestorm of activity from ETP providers.  They’re rushing to bring hot new products to market ahead of the competition.

But that’s not all…

Fierce competition amongst ETP providers is driving down trading costs for everyday investors.  More and more ETP providers are teaming up with brokerages to offer commission-free trading of their ETPs.

Simply put, it’s a fantastic development for investors.

I don’t know anyone who enjoys paying a brokerage commission.  And this is the biggest development in lowering the cost of trading since online trading.

I’m sure you’ll agree lower fees are a good thing.  But here’s the catch… You’ll have to do some leg work to make the most of commission-free trading.

Most of the deals between brokerages and ETP providers are exclusive.

For example, you can trade Schwab ETFs for free in a Schwab account. But the same trade at another broker will still cost you a broker’s fee.

So remember, do your research.  You need to find out what ETFs different brokers offer commission-free trading on.  You’ll want one that offers the types of ETFs that fit your trading style… Commission-free trading isn’t going to do you any good if your broker doesn’t offer the right ETFs.

Here’s a recent example of an ETF provider and a brokerage working together.

Interactive Brokers and FactorShares are teaming up to offer commission-free trading on FactorShares’ five new ETFs.  So, anyone who trades on Interactive Brokers’ Trader Workstation can now trade these five ETFs commission-free.

It’s a win-win-win…

The investor pays lower trading costs.  The broker gets exclusive rights to offer the ETFs commission-free.  And the ETF provider gains more assets under management.

The way I look at it, active investors should be taking advantage of commission-free ETP trades.  If your broker doesn’t offer them, start shopping around for one that does.  It could end up saving you thousands of dollars in commissions.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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