Zero Commission Stock Trading The Evolution Continues

For years, retail and institutional investors had grappled with commission fees that ate into earnings.

There was, in fact, very little reason for the online trading world to change tact, after all, it was the standard across the industry.

It all changed back in the 4th quarter of 2019, however. It was inevitable that one of the largest online platforms would take the 1st step as the on-line trading industry became more cutthroat, with brokers batting for clients in a relatively saturated market place.

The change was not only significant but also out of the blue. Online trading platforms used to charge as much as US$7 for each trade. When considering the size of the on-line stock trading market, this translated into significant revenues for brokers and materially reduced earnings for investors.

In 2017, the major brokerages cut fees and market volatility in 2018 saw brokers bleed. That paved the way for 0% commission trading that hit the on-line stock trading world in 2019.

This market volatility and slide in broker income was not just seen in the U.S but also across the Pond.

eToro was well placed and nimble enough at the time to follow the trend from the U.S and shift the landscape in Europe.

Why the Need for Change?

While there has been a marked growth in online trading platforms, supporting the trade of stocks globally, some fared better than others.

While the likes of Charles Schwab was certainly amongst the leaders in the U.S, eToro was and remains a front runner in Europe.

It was for this very reason that Schwab was able to catch the markets off guard late last year and for eToro to set the trend in Europe.

While the market balked at the concept of dropping commission fees, it is worth noting that fees were not dropped for all investment strategies and services.

The decision to cut commission fees and offer 0% commission trading was ultimately made to lure investors away from banks and other platforms that held commission fees unchanged.

It wasn’t just the existing investor base that eToro and others were interested in. The removal of fees also drew in new investors, which was key.

A larger client base provides a significant opportunity to cross-sell other investment products, where commission fees remain.

With the U.S and European equity markets hitting fresh record highs at the turn of the year, investors will have certainly enjoyed better returns after being freed from punitive commission fees.

Investor Benefits

Market access to a wide range of stocks offered under the zero-commission scheme is certainly an exciting proposition for investors and traders.

There is absolutely no reason for investors and traders to show loyalty to platforms that continue to eat into earnings.

For investors and traders, higher profit margins as a result of 0% commission trading increases interest in alternative asset classes.

Just in the last week, we saw the global equity markets bleed in response to the spread of the coronavirus.

In stark contrast, the cryptocurrency market was on the move, finding sizeable inflows as a hedge.

This was not a one-off, with the rise in tensions between Iran and the U.S also leading to a spike in the crypto market.

Investors and traders have benefitted, not only from the vast number of 0% commission stocks on offer but also from eToro’s crypto asset class offering.

For investors, this is an undeniable benefit, while eToro also sees a jump in its investor base.

Ultimately that is essential for a successful platform as it delivers liquidity for investors and traders across the eToro platform. This is particularly important in volatile markets…

The Now

One thing is for certain, the trading world has grown over the last decade. We’ve seen geopolitical risk take center stage since Trump’s President Election victory back in 2016.

Retail investors across Europe have historically accounted for a small proportion of the equity market investor base. High commission fees and inaccessibility left many out in the cold

That has now changed and eToro’s decision to go commission-free on an array of stocks has driven that change.

For investors, it’s not just the crypto world that is on offer.

eToro also offers Indices, Exchange-Traded Funds. Even FX has seen volatility on the rise, drawing investors in.

The benefit for a trader and investor is the one-stop-shop that eToro offers, which allows investors and traders to more efficiently manage P&L. There’s no need to have multiple platforms to cover the ever-widening range of asset classes on offer.

Looking at eToro’s European platform, eToro not only offers zero commission on trades but also:

  • Zero stamp duty for UK investors. Under UK law, investors must pay stamp duty.

eToro goes a step further than others by paying this for investors.

  • No limit on trading volume.
  • The offer of fractional shares.
  • Free access to TipRanks expert stock analysis.

It is fair to say that brokers who held onto their trading commission fees have little time left. The 0% commission stock trading world has become the norm.

The Future

For investors who may have cashed out, with global equity markets having hit record levels, there is something to consider.

As the global equity markets become more accessible to the untapped, bourse market caps are inevitably going to rise.

An increase in the retail composition across the more institutionally biased equity markets of Europe and the U.S will also see volatility pick up. We’ve seen the crypto world draw seasoned traders away from the more traditional asset classes in search of volatility.

eToro is ideally positioned to allow its client base to benefit and to offer the same seasonal investors access across multiple asset classes.

It’s certainly an exciting time for the global financial markets and traders entering the online trading world.

Satoshi delivered Bitcoin to remove the banking world’s grasp on payment platforms.

eToro may well eat into the banks’ trading monopoly.

With the zero-commission investing now on offer, we will also see a rise in the offering of fractional share trading.

eToro is already there. Evolution suggests that fractional trading is next, just as we have seen across the crypto market.

After all, not everyone is able or wants to stump up $9,000 for a single Bitcoin…

That would grant the less wealthy investor access to a whole new world. Even the likes of, Tesla, and Berkshire Hathaway, the world’s most expensive stock, would be within reach.

Zero commission is only available to clients of eToro Europe Ltd. and eToro UK Ltd., and does not apply to short or leveraged stock trades. Zero commission means that no broker fee has been charged when opening or closing the position. Other fees may apply. For additional information regarding fees click here. Your capital is at risk.