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|
|Symbol||Time||Trade||Change||% Chg||Volume||Intraday||Related Info|
|BAC||10:17AM ET||53.92||0.71||1.30%||2,662,900||Chart, Messages, Key Stats, More|
|SCHW||10:22AM ET||17.13||0.93||5.15%||9,503,870||Chart, Messages, Key Stats, More|
|ET||10:17AM ET||22.35||2.11||8.63%||6,329,600||Chart, Messages, Key Stats, More|
|AMTD||10:22AM ET||17.08||2.02||10.58%||12,398,085||Chart, Messages, Key Stats, More|