Commission Free Trading is Here

Back in 1970 if you decided to buy $2,000 worth of a stock through a broker the transaction may have cost you roughly $40. At first that may seem like no big deal, after all many people still pay roughly $40 to buy stocks through big wirehouse brokers. But $40 in 1970 is the equivalent of $215 today. Now, that's nothing to sneeze at.

For a long time brokerage firms depended on fixed trading costs as a consistent revenue stream. However in 1974 and 1975 Congress and the SEC took away the NYSE's ability to set the commission rates its member firms charged. Few large brokerage houses did anything at first, but eventually discount brokers like Charles Schwab emerged and offered lower commission trading for a fraction of the costs. These discount brokers pulled this off by not offering much in terms of research or guidance to its investors. That began the discount brokerage trading commission race to the bottom. Just a few years ago trading for $10 seemed like a great deal. Today, many investors are trading for absolutely free on sites like Zecco.com or through programs at large banks like Bank of America.

Many who follow the brokerage industry have long said that commission free trades are inevitable. But trading costs are not the only factor in where to hold your assets. The word on the street is that Zecco's interface has more ads than MySpace, still doesn't have a great trading platform and may be unreliable. Bank of America's free trading platform requires a $25,000 minimum investment. Unless you are a day trader the minimal costs savings probably don't outweigh the risks at this point. But, hopefully this move towards commission free trading will spread and discount brokers like Schwab and TD Ameritrade will follow. Until then, proceed with caution.