Fidelity announced that it too would be offering free trade commissions to its customers following earlier announcements from Schwab and TD Ameritrade. Fidelity free commission trades have some limits, but they are not onerous.
While this is a newer movement among discount Wall Street brokers, it comes after many different investing apps, and services have pushed a commission free investing business model for a year or two now. Obviously, the free trade model is mostly aimed at smaller, do it yourself investors. It also works well for those doing the roboadvisor, or computer-based model investing.
Fidelity Free Commission
Larger investors already enjoyed “free” trades as part of an annual fee usually applied to their accounts that provided not only free trades, but investment and financial advice as well.
Keep in mind that the free trades does not apply to mutual funds with loads, or other investments that charge their own fees. This new wave of freebies only applies to stock trades, ETF trades, options, and other market trades. And, of course, be sure to check the fine print where you’ll find tidbits, like $0.65 per option contract and a charge for sell orders:
Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal).
https://www.fidelity.com/why-fidelity/pricing-fees
Free Index Funds
Obviously, Fidelity won’t be losing money. They make plenty of revenue in other ways, including the cut of the expense ratio for any mutual funds you hold in your account, and all the expense ratio for any Fidelity proprietary mutual funds you have.
The exception is a handful of zero-expense ratio index funds that Fidelity offers. An intriguing concept, there are only a few such funds available. However, they are various kinds of total market funds, which makes them an ideal choice for investors with lower balances, and small amounts to invest, as well as those that just want to use an overall index as a way to get their stock exposure.
As always, understanding your investing goals, risk tolerance, and overall investment portfolio is more important than chasing headlines and new announcements, but free trades might save you a bit of money. More importantly, the movement toward cheaper expenses and lower fees will benefit investors in the long run, whether it’s absolutely free, or just cheaper overall.
Update: Fidelity also now offers the ability to invest in fractional shares with its Stocks by the Slice program. A full Stock by the Slice review is coming, but for now, investors can purchase fractional shares, or stock slices, at Fidelity via is Fidelity Mobile app. In the app, an investor enters the price in dollars rather than in shares in order to purchase fractional shares. Fidelity keeps track of things like stock splits and dividends and credits them to your account.
National Market System (NMS) exchange-listed stocks are eligible for Stocks by the Slice. All fractional share, or Stock by the Slice, trades must be placed as market orders, or limit orders that are good for day of trade only. Fractional shares are rounded down to the nearest 0.001 share.
Other brokerages offer fractional shares to investors as well including some micro-brokers like Stash and Public.
About the Author
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson did not own any securities mentioned above, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.
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