Fidelity announced that it too would be offering free trade commissions to its customers following earlier announcements from Schwab and TD Ameritrade.
While this is a newer movement among discount Wall Street brokers, it comes after many different investing apps, and services have pushed a “free” or “almost 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.
Larger investors typically already enjoyed “free” trades as part of an annual fee usually applied to their accounts that provided not only free trades, but investing 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 of 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 interesting choice for investors with lower balances, and 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.