Four Hidden Costs of Zero-Commission Brokers
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- čas přidán 15. 07. 2021
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Skip to after zero-commission broker explanation: 3:48
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In today's video, I explain how zero-commission brokers aren't "free."
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This channel is for education purposes only and is not affiliated with any financial institution, although Richard does work as an employee for an investment manager. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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Loved the channel! Loved the video until 13:00... Forced ads get an automatic thumbs down and unsubscribe
@@jamesi1962 Well, you could have just paused the video... you don't have to watch the ads
@@kallehed6330 "forced ads" no skips, when you pay for CZcams red (to skip all ads) and people insert forced ads. .. it's killing great channels like this one, was
Oh, I thought you were talking about the sponsor, I personally use an adblock to cirmuvent youtube ads
When you said “here in Canada” I auto-clicked the subscribe button
But but but they give me fireworks when I buy something!!
Whaddup Javier!
I do like the fireworks ngl, not as glamorous buying a share on td ameritrade 😂
Lmao
Fireworks is life.
🎊
1. Bid Ask Spread
2. Foreign Exchange
3. Payment for order flow
4. Incentivization to trade
Are these things (except the last one I guess) not present in brokers with fees? If I buy an index fund, are these costs covered by the fund management?
All that is better than a $6 trade
@@evansericksondepends on if you’re a bot. Lots of transactions this is might be a better deal. Fewer large transactions $6 vs percentages, $6 always better.
Thanks chocolateface, saved me 15 mins.
@@genghischan69 The bid-ask spread and forex fees are present in commission-charging brokers, but are typically lower than with zero-commission brokers. And the vast majority of commission-charging brokers do not accept payment for order flow.
For those who like it straight:
1. Bid-Ask spread 4:16
2. Foreign exchange 7:08
3. Payment for order flow 8:02
4. Incentivization to trade 10:05
Valuable service you've provided there! Thanks!
thanks for having this background Richard
-my eyes
There's no such thing as a plain bagel, on today's free lunch.
"If it's free to use, you are the product" - someone on the internet somewhere
HI DANA
I believe that was Johnny Myspace.
@@HumphreyWittingtonsworthIV HIIIIIIII
“Bitch better have my money” -Siddhartha Gautama
“Watches on CZcams” 😂
Also, keep in mind, you'll pay forex fees when you buy and then sell further down the road; so you're getting double tapped on point #2.
There are methods to avoid this conversion using Questrade.
@@matthewnunez1483 On questrade you can actually hold USD. You are not forced to convert USD to CAD until you actually want to. And after years of compounding growth, the fee will be minimal even if you had to pay it. Wealthsimple on the toher hand, forced you to convert and pay the fee right away. Which actually costs a shit ton of money for bigger accounts.
You helped me pass my brokerage exam! This is the best investing channel on CZcams!
which one? series 7? other?
Scary thought that a youtuber gets you accreditted.
@@mykeprior3436 he is a financial analyst that has passed exams as well lol
Yeah he's actually straightforward. He gives more information than required. He doesn't overstate like a lot of other financial gurus
Congratulations!
Great video! But there is also another source of income from the brokers from “zero fees”: interest over the float of the money in your account, that returns usually zero to the account owner.
Que legal vc aqui na gringa 😆
i'm honestly okay with that. its the cleanest source of revenue for the brokerage imo. not a huge fan of Payment for Order Flow.
That amount is usually pretty small as most people don't maintain cash buffers.
And it doesn't cost you anything. It's just losing value to inflation the same as most checking accounts.
Perfect video
I almost heard "This video has been sponsored by No one." lol I am missing your videos.
I agree with all four, as well as your caveats. Very well done! “When the product is free, you are the product!”
I have noticed with WealthSimple, when you place a limit order on a stock, the sale doesn’t usually happen until the stock price falls below the price of your limit order. Usually only about 1 cent. The way I see it, if you got it at the price you want, no big deal. You got your share at your price and a seller got out at a price slightly higher than where the price is going if it continues to drop beyond your limit order.
The spread is just limit order and take profit positions. When you set a limit order the price has to move down to your value then other people can accept your bid. But at that point there will still be a spread so its not actually avoiding the spread, only avoiding the uncertainty of which price you will actually be paying.
Besides the normal front-running customer orders there’s also “trend-tracing” algorithms that the big HFT firms deploy. Based on study of market participant behavior they attempt to read what a particular set of customer will do, spread it out over a relatively large set of stocks and then attempt to trade ahead of the targeted group. Diversifying the stocks enables the HFT/algo to just be right 60% of the time and they make money.
I'm curious what that means for a beginner trader?
Aha! They make their money off the data they collect, and it's not insider-trading because it's public. Very clever.
😮😮😮😮
I know you said "for the most part", and not "always for all of them", but I've always found Wealthsimple was pretty straightforward about how they make their money off their exchange rate. It's like the first FAQ or something, like "hey how is this free what's the catch?" And the answer is they make money when you buy US stocks.
This channel is dope. Great job on this video. I legit sat through the video taking notes like a student.
I was in the market in the 90's. Believe me, it's better now without commissions. Tell me, what is free? Plus you can buy by the slice now. When you had to buy blocks of 100, it kept a lot of people from buying large stocks. You forgot to mention you had to pay a commission when you sold also...
Hey man! I really like the background in this video! Just saying... Cheers!
The spread is a big deal when trading, but not when buying for the long term. I don't care what the spread was for the Microsoft, Alphabet, Amazon and Tesla stocks I bought in 2016. :)
wish i woulda been old enough to buy stocks in 2016-2019 missed out on so much money :(
Wow u must be loaded now 😅
@@wunmi9359
Nah, should have bought more back then, only took a few of each. :(
@@midimusicforever how many shares of each did you buy
The spread means nothing for a large volume stock….
Amazing video! I used to wonder about their business model, and now it makes complete sense. Thank You
If a product is free then you're the product.
Or they think they can upsell you their paid services.
You're Plain Bagel's product because he makes 0.05 out of you?
@@alvarengasoso No, we’re CZcams (Google’s) “product” because the more time we spend on CZcams watching people like Plain Bagel, the more ads CZcams can push to us. They can also use our Google (CZcams) account to track demographics which is very important to advertisers. Google makes hundreds of millions of dollars every tear from advertising revenue. Who are they advertising to? You and I.
@@smgg7191 Who doesn't us an ad blocker in this day and age?
@@smgg7191 I'm okay with being a "product" though. The quotation marks really easy up my mind.
Your videos are so we'll done, thank you for the content. Always a lot of great information.
This video is right on time! Thank you!
thank you so much. I was wondering about this topic today.
Really excellent video! I had been curious about this for a while. I had no idea about the cost of purchasing stock in a different currency, that's really good to know.
Fire video bro! Love the background and the music!
Yet another excellent, thoughtful, and informative video. It may have already been said, nonetheless it bears repeating: when receiving financial services for free, you need to carefully consider whether it is actually you who is the product.
Just a heads up, u mentioned a time stamp in the description box but there aren't any time stamps indicated in the description box.
On an unrelated note, seriously happy u made a video about this breaking it down. No one's done so yet and I've only heard speculation of how these firms have recouped their losses by not charging commissions. Love your channel brotha
Thanks for the comment! I see a timestamp on my end, is it not working for you? You may need to expand the description box
Thanks, as always your videos are highly informative. I have been wondering why a few pennies were missing on my trades now I know why.
Really clear and fair video. Thanks
Great, important video! I've been very curious about the topic.
Glad to see some coverage on what happened with GME.
Good and informative video. I have been trading for years at this point main with a fee broker but I do use RH as well, and I DID learn a thing or two here, which is nice. Won't effect what I do too much, but the more you know! Keep the up the good work!
“No such thing as a free lunch” is a quote popularized by Milton Friedman.
Thank you so much for this video! The bid ask spread explanation was extremely helpful! I saw the bid and ask prices on stocks on my brokerage app, but never knew what they meant
Thank you for putting this info in a video I've been telling people some of these fees for the longest about time some did it so people can really understand what's going on with there money
Great insight!
Love your videos!
Robinhood: The fact that you'll lose your entire account balance in 2 weeks.
Love your videos man!!!
I love your videos dude, they are very entertaining and have great knowledge in them. Keep it up
The Lord has spoken!
Your vids are great man!
That's the downside of taking risky positions with any brokerage.
Great video on this topic, and love the background! Only one comment:
I thought Wealthsimple Trade made it quite clear that there is a 1.5% forex fee on both buy and sell transactions. It's in the terms you have to agree to, but they also mention it seperately for the people who don't bother reading the terms.
As a result, I've only ever bought Canadian stocks and ETF's. Especially since there are plenty of diverse US and Global ETF's available on the TSX. I don't have much interest in buying trendy stocks like Apple or Tesla when I get plenty of exposure to these through index tracking ETF's
“If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.”
― Warren Buffett
great channel
Loved this video! He didn't bring the "Robinhood is the only one" rhetoric that every other channel has and all the obvious biases against Robinhood exclusively. Well done!
Thank you for this easy to follow break down of apps I use!
Very true and informative.
Thanks, God bless 🙏👏
Great video
Great video. Cheers from the Glebe.
BagelBoy back at it again!
I thought that Robinhood halted trading on GameStop not because of short positions held by Citadel but because the trades had put them in a situation where they couldn’t meet collateral requirements with their clearinghouse.
That’s correct! A lot of people called that story into question however because of their relationship to Citadel; it’s speculation, but one that brought them a lot of scrutiny
@@ThePlainBagel Deliberately unfair scruitiny. The guys presenting the literal conspiracy theory as fact were the same guys harassing Melvin Capital employees and their families as well as sending me suicide requests. Most of them were literal gamblers and sports fans that got in after the squeeze.
@@samsonsoturian6013 I agree that, as with a lot of things, people took speculation for fact and took it too far, but it’s not unfair scrutiny to call into question a pretty clear conflict of interest, even if the two didn’t collude. I’m sorry to hear about the harassment, that’s not warranted.
@@ThePlainBagel when you're dealing with zero sum games and corporate raiding there are always massive conflicts of interest. I personally was telling people to take profits and diversify DURING THE SQUEEZE and got all sorts of lies spread about me (most of which was that I was a corporate spy). And yes, four different people told me to off myself, one guy doxxed me, four Facebook groups banned me, and I got a fury of expletives from people who consistently turned out to have never invested before last February.
The amount of gaslighting involved in GME/AMC is insane...
@@samsonsoturian6013 that is insane…don’t get me wrong, that whole movement (and the culture around it) has many flaws…I don’t count myself to particularly be a supporter of it. I’m definitely hoping this wave of malice that’s come up with retail trading settles down because it’s not productive or helping people with the supposed cause they stand behind
whoops, at 4:47 the spread is $0.20 but Richard wrote $0.02
You are the best!
Very informative sir!
i am fulfilled. thank you richard
Yayy hello fellow Canadian 🇨🇦😀
The bid-ask spread is just an impact cost due to market inefficiencies. It does not go to any institution. Anyone can eliminate the bid-ask spread by bidding higher or asking lower thereby eating the cost themselves or they can choose to bid lower or ask higher and risk their order not getting executed.
Market makers earn their money from the bid ask spread.
In US every broker is a zero commission broker now. Including Schwab, Fidelity, E-Trade and Vanguard.
Now if only we had that in Canada. From what I can tell Wealthsimple is the only one.
Graham X is it possible to use Robinhood in Canada?
@@djeieakekseki2058 I don't think so
Graham X gotta go with Wealthsimple then.
Thanks for looking into the fine print
Perfect video ❤️
But there is no hidden cost of watching the fantastic videos from The Plain Bagel. Thank you Richard for the fantastic content, which I always watch.
Thank you for dumbing it down and explaining what a broker is, etc. Appreciated.
Fidelity has zero trade fees and doesn't sell order flow.
Except for options
@@ralphemerson497 lmao you’re way too young to be trading options
@@tuscanollie1242 a 15 year user, not 15 year old.
@@Brongo111 ah my mistake
@@tuscanollie1242 Dude, I retire in three years. My trading days have been very profitable under Obama, Trump and Biden profligate spending. Heading to beachfront in Mazatlan.
Thanks!
I think the fourth point is really important. I only started investing 2 years ago and I use a traditional institution that has fees and I think it helps me be less active and more reluctant to sell (I've still never sold any stock actually!) There's a part of me that wishes I had no fees, of course, but I also worry that it would get me into day trading, which isn't what I want. The psychological aspect of investing is crucial and fees increase self control.
Questrade is a decent medium, buying fees range for $5-10 for securities and only pay a fee for selling etfs.
If you are motivated by having fees, then it's not 'self control'
Then it’s a “you” problem at that point.
Bro . That’s not a smart play . Why pay for something you can get for free even if it is only a small amount per trade
You’re a lame brained simpleton
I learned FAST when deciding to hold mega long term on WS in canada. Do not buy USD securities for long term growth because that nast 1.5% conversion rate at he end. Especially for etfs, there's usually an identical CAD version. I did the math against my banks investment solution and found that if I want to buy USD stock, its way better to pay the 6.5$/trade when spending more than 250$ CAD, then i get all the awesome tax free benefits and growth in USD stocks and the 6.5$/trade is cheaper than the 1.5% WS USD-CAD fee
To be fair to Wealthsimple Trade, I've seen more attempt from them (i.e. sending an email to clients on the subject and working on parallel USD accounts to avoid forex translation) than "traditionnal" brokers with said high fees. Most of them won't even try to make you open a USD account to make sure you buy your USD denominated stocks in your CAD accounts.
Smashing the like button bro!
Back when I was studying for the series 7 I remembered the difference between Bid/Ask by "Clients pay out the ask"
This is by far the best finance content on CZcams! Thank you, Plain Bagle. There’s so much bad information on CZcams now. I get recommended “get rich quick” videos everyday!
You’re doing the Lord’s work.
People are all over the place. It's "get rich quick" then "bitcoin" then "401 is stupid" then "real estate is the best" then "the stock narket is a giant scam"... Invest for the long term. Use any GOV incentives to invest and pay less taxes. Start early. Stay invested during bear markets. Don't try to time the market.
Most good brokerage firms do order flow by routing it to the firm that gives the best fill. By making a market for markets, that’s how it’s less nefarious. And better fills than on open exchanges.
Your thumbnails kill me so bad they're good
Canadian here: all of the costs that come with Wealthsimple also exists on platforms that don't have commission-free trades. Pretty sure every Broker in Canada also has a 1.5% Fx fee, Margin, Bid-ask spread fees, and they also charge for each trade.
Questrade allows you to hold USD in your accounts, so you can deposit USD directly if you want, and you can use Norberts's gambit to get around exchange fees. Also, when you sell you aren't forced to convert the USD back to CAD and pay exchange fees, as you just keep it as USD.
Everyone else has a 2% FX fee... But everyone else also lets you hold USD so you only have to exchange once.... But even if your holding USD if you want to spend it on something other than stocks you either need to convert it back to CAD or you need to spend it in the states so Wealth simple 1.5% fx must be exchanged twice where as everyone else charges a 2%FX fee with a small chance you won't be charged twice.... Also I am writing this 5 months after your original posts.... Wealth Simple is launching a USD account on their platform for paid subscribers $10/mo which has the USD account as well as No fees for any US or Canadian stocks including no FX fees for currency exchanges.
Hi Bid and ask price for Market buy or sell is bit different as u mentioned. When you do a market buy the market maker selects a sell options which is supposed to be the lowest after adding their cost. But usually they can pick any which is coming at the same time.
For Limit since we define the lower buy and higher sell. They have to wait for the next best after the limit crossing.This can be going way down or up because of momentum.
Great video! I've really been enjoying your content. Please do keep up the great work!
On a side note:
Could you do a (short) video on share buybacks (especially in comparison to dividends), why some companies love them and the controversies that surround share buybacks? Sure, we know the basics of share buybacks, but it would be great to know your opinion on them as a professional analyst since they get a lot of positive and negative coverage in the news.
That awkward moment when you ask for a video which already exists haha
czcams.com/video/rVTHRvNpsFs/video.html&ab_channel=ThePlainBagel
My bad! But do keep up the great work!
Yeah gamifying it is what wealth simple And Robinhood have done. But I see way too many people buying youtube stocks then saying why is my portfolio down. Risk is crazy but is disciplined. Great video!
i think the term "short term trader is more than long term investment" is true.
same things happened on my country too, that many people (especially younger people) wants money fast so they joined the stock market, but many of them not well educated, they just listened to other people, followed them plainly, and you know the rest!
and you're right Richard, thats pretty bothers us as long term investors. anyway, good topics!
Nice video! I found it very interesting.
I hope you can answer the following question:
When you use this type of apps to buy financial products, does the app provide you any documents that certify you own the product (shares, bonds, ETFs, etc) so you can keep your investment and profit from it in the long term, even if the app disappears or goes bankrupt?
One thing though is that you still have to pay spread on limit or stop orders. I have in more then a couple occasions had price come to my limit order price and not activate due to spread.
This new formart is really good :)
Perfect, Something to watch while eating!
I eat too nom nom nom
Schwab was one of the original low or no cost brokers, way before Robin Hood.
The big stocks bid-ask spread on big stocks is usually 1 cent. The bid-ask spread on popular options, in my experience, is often 3 to 5 cents.
Agreed, the spread thing really depends on the company (and it happens anywhere, not just zero-commission brokers). As our host said, the more heavily traded a given security is, the smaller that spread will be.
At the end of business Dec. 22, 2023 I’m seeing a bid-ask spread of 0.06% on Microsoft but 2.5% for Synchrony Financial (a mid-cap bank best known for doing the behind-the-scenes work for retail financing, those “no interest for 12 months” promos.)
Overall the spreads aren’t too bad. I’ve automated my stock purchases so they happen every two weeks, and on that day I can expect to lag the market by a quarter percent. So for each $400 I invest I’d pay $1 in spreads. I’ll take that any day over $7 per trade like in the dot-com days or 2% minimum like in _Wolf of Wall Street_ .
Magic_beans, my first stock purchase was in the mid-1970’s, the era of fixed commissions, so I shudder to think how much I paid Merrill Lynch for that trade.
I don’t understand how RobinHood and other “zero commission” brokers get paid “for order flow.” I don’t see how my little purchases/sales have enough real time value for anyone to pay for.
Videos go hard
well, 3 causes a higher 1, and 2 I would argue is reasonably well-known and avoidable. 4 is a great and very interesting point. The zero comission just causes a higher bid-ask spread through increased PFOF. I think munger said it very well regarding this new zero comission practice. I'll just continue using limit orders - at least this kind of higher bid-ask spread causes a cost that is easier on low-value porfolios like the one i'm managing. A fixed commission would have been hell to me
Hey! I'm not sure if you read comments or not, but I was hoping you could react the the stock market scenes in Limitless and tell us what you think! Or any other movie that may be more involved in stocks that Limitless. That is just the first one that came to mind. Thank you!
It's like a casino purposely having no windows so you have a lesser idea of how long you've been gambling
Interesting; shopping malls also lack windows.
So would you recommend any premium programs? How do you invest?
Great explanation Richard. There's always a cost to transactions, either implicit or explicit.
On WealthSimple, just buy TSX canadian stocks and you’ll avoid all the forex fees.
I know a few people who lost a lot of money when they started investing. But after a while, they settle down and take it more seriously. Mainly the fact that patients and time are the biggest factor to gaining.
I tell everyone starting out, just stick to mutual funds. There's a lot of amazing funds out there that no barriers to entry, usually just a higher managing fee
What a good freaking video.
Any chance you can talk about a similar topic of the new Zero Fee Indexes like Fidelity Zero? Are there any downsides other than having a small deviation from the actual indexes?
I love WS. I have a plan which I follow. It mostly consists of adding etfs on a weekly schedule and drip the divs. I like not paying $9.99 per trade like I did with TD
There a simple fix for the bid and ask price spread, you can place a limit order at the lower/higher price and wait a little bit until somone else buys/sells you at that price.
But the price must move up/down beyond that price to be executed.
Nice background!
Just checked. Payment for order flow (PFOF) is banned under Australian law too since Feb 2014 :D
Sometimes "free" or discount brokers cook up fees not directly related to trading. One German discount broker I used was very cheap at the trading commission - but charged a F/X comversion fee for every non-Euro dividend received.
Imagine that on a diversified portfolio with quarterly dividends.
As soon as I realized that, I left that firm...
Nice.
When I get older, I want to be a financial advisor like you.
Yes
Greetings, young traveler.
Always use limit orders and consider selling puts so you can mitigate the sha nay nays a little bit with commission free brokerages.