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October 11, 2006

Bank of America Offers Free Stock Trading - But Is It Really Free?

posted by MR WAVETHEORY at 10/11/2006 07:39:00 AM

Bank of America is offering 30 free stock trades per month for customers with $25,000 or more in deposits. Zecco is offering 40 free stock trades per month to customers with at least $2,500. Additional trades are $3.50. Free online stock trading may be here to stay, but consumers should be aware that there are hidden costs.

I pointed out that free is not a business model for Zecco, but a great marketing strategy. It seems like that is true. Both Bank of American and Zecco cap the number of free trades you can make. Additionally, companies like Zecco and Bank of America may make a market in your trade. That means, they will buy from you or sell to you when you trade - earning their money in the form of a spread. This could be very costly to the average investor. For instance, let's say you wanted to buy 100 shares of Apple for your retirement account. If you paid just $.10 extra on a 100 share order of Apple stock by going through Zecco or Bank of America, that translates in $10 out of your pocket and into Zecco or BofA's. Imagine doing that for 1000 shares, multiply by 40 times. That would be $4000 in hidden costs to you the customer. There may be free hot dogs at Zecco but there is no free lunch.

In any case, today's announcement by Bank of America is bad news for online brokers: Charles Schwab , E*Trade Financial, TD Ameritrade Holding. Bank of America has 50 million customers. Charles Schwab has 6.8 million.

Online Trading Stocks

SymbolTimeTradeChange% ChgVolumeIntradayRelated Info
BAC10:17AM ET53.92Down 0.71Down 1.30%2,662,900Chart, Messages, Key Stats, More
SCHW10:22AM ET17.13Down 0.93Down 5.15%9,503,870Chart, Messages, Key Stats, More
ET10:17AM ET22.35Down 2.11Down 8.63%6,329,600Chart, Messages, Key Stats, More
AMTD10:22AM ET17.08Down 2.02Down 10.58%12,398,085Chart, Messages, Key Stats, More

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Blogger Davis Freeberg said...

I think that you also have to take a look at what BofA is making off of their money market assets. With a yield of less then a half a percent at a time when you can easily find rates north of 4.5%, I have to wonder where all that extra yield is ending up at. Most consumers probably won't consider these issues, but I bet BofA corp has.

9:26 AM  
Blogger MR WAVETHEORY said...

Good point. With stock trading, BofA can also start earning margin interest on those money market assets which is as high as 2x the 4.5% yield.

9:18 AM  
Blogger Thomas Rockwood said...

Everything is going through a lot of changes. There are new and emerging technologies that are integrating into the current ones.

Most business transactions and systems are also being influenced and affected by these integrations between the technology and the business transactions.

Internet stock markets make up for more convenient and adjusted stock market trading transactions.

Online Stock Trading

9:31 PM  
Blogger Eric Bergen said...

E*Trade & the other competitors will have to match eventually or risk losing their customers. I know I’m thinking of switching! But the Ameritrades & Scottrades of the world cannot since this is their primary source of revenue. I see them getting bought out by the more diversified online bankers.

1:33 PM  
Blogger MR WAVETHEORY said...

Like you said, I wouldn't be surprised to see some of the pureplay online brokers getting taken out in the next year or so. I see Bank of America heavily promoting the free stock trading service to banking customers, and if this has a good attach rate, then it will be game over for the commission brokers.

12:13 AM  
Blogger Alfonso said...

Wonderful option provided by the Bank of America. It really helps people to take benefit of the scheme. The free stock trading software will offer tools to make enhanced judgment so that a person will feel happy trading frequently. Some sites will proffers free trades as well upon sign up, permitting people more time to perfect their skills.

1:31 AM  
Blogger aldrin james said...

I also heard things about this stuff and I also want to know if it is free. I am just so thankful that I found and read this post.

trading seminars

6:13 AM  

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