Technology makes investing simpler than ever – which is awesome. Some markets, however, still charge excessive fees and commissions to purchase online stocks and ETFs when it is possible to buy online stocks free of charge!
Even some of the companies that advertise “start with just $5” can end up charging you huge fees as a percentage of what you’re investing. We also saw some extremely unethical financial advisors charging thousands!
We’ve spoken before about our favorite places to invest for free, but most of those companies only allow you to invest for free in mutual funds and ETFs. While they don’t have a minimum investment sum (which is awesome), they don’t let you invest in individual stocks.
That’s perfect for 95 percent of people. We do not advocate investing in individual stocks for most people anyway. Long-term they will develop a low-cost ETF portfolio. Yet there are still places, for those who want to purchase individual stocks, that allow you to buy stocks online for free. Check them out:
Where to buy online stocks free of charge
Right now, there are just a few free (i.e. commission-free) ways to purchase stocks online. Technology keeps making investment cheaper, however, and more companies are battling each other with lower prices. In the next few years, we will expect to see the cost of buying stocks online fall at most companies.
1. M1 Finance
M1 Finance is an amazing new platform that recently launched free pricing for investment commissions. All this means for you is that you can for free invest in stocks and ETFs – yes, for $0.
But the great thing about M1 Finance is they do allow you to invest in fractional shares – so you don’t need to have a full share price to invest. That’s innovative and makes M1 Finance our top option for free investment sites.
What makes M1 unique is that you are creating a “pie,” and you are investing in that pie. This investment pie could contain a single stock or a basket of 100 stocks. When you add money, it deposits your money into your pie to balance it out. This is perfect for long-term portfolio building – and it is free.
Robinhood is an app that lets you exchange stocks for free on your phone (both Android and iPhone). We like Robinhood because it really allows free trades – and that’s terrific. The degree to which we like Robinhood does end there, though.
The platform is “no-frills” pretty much when it comes to what you get. There are few tools and resources, there is no desktop edition, there is an extremely small amount of investments available on the site and just doing simple stuff like getting the tax return at the end of the year is a struggle.
But hey, it’s free. According to a survey by TD Ameritrade, the average “active trader” now basically trades 18 times a year. If you trade 18 times a year at a place that charges a fee of $4.95 every time, you spend $89.10 more a year than someone who spends on Robinhood.
If you spend a small amount of money, as a part of your portfolio expenses, that can add up to very big savings.
Fidelity is our favorite online broker pick for a variety of reasons. In addition to being a full-service brokerage, allowing you to open and use any form of account, any form of investment, and offering outstanding customer service, they also offer commission-free stock, ETF, and trading options.
They always make it easy to do anything, both on smartphones and online. They also have many locations around the U.S., should you need professional assistance.
And, if you’re looking for a long-term brokerage in which to invest, we highly suggest Fidelity.
Vanguard has long been the investment community’s favorite and at relatively low-cost levels, they have some of the “best” mutual funds and ETFs. What this means is that you pay a small amount of recurring fees for yourself.
And just recently, Vanguard announced they’re commission-free on stock, as well as ETF, and options trades (like every other broker out there).
Now, if you don’t just want to own a Vanguard fund but want other alternatives, you can make free investments in those.
WeBull is one of the newest players in the free stock trading sphere in the US, but it has been active worldwide for several years.
They have a lot of tools and services to help active traders use their platform, unlike Robinhood, which frowns upon trading.
One of the distinguishing things about them is their strong technical charts and instruments. WeBull does not actually allow options trading, however, which is one thing that Robinhood does.
Safe Alternatives for Investing
Although the options listed above are almost entirely free ways of investing and purchasing stocks online, here are some other alternatives that have entered the commission-free investment game recently.
TD Ameritrade offers commission-free stocks, ETFs, and options investing. They have a wide range of commission-free mutual funds and no-load mutual funds.
TD Ameritrade is good when it comes to letting you create a broad portfolio at a low cost. Plus, TD Ameritrade has consistently some of the best offers to sign up for. Read our detailed TD Ameritrader review.
Charles Schwab is another broker who joined the commission-free investment arena – with commission-free stock, ETF, and options trades.
Also, Schwab has a fantastic sign-up offer all the time, with lower minimums to get the same incentive as other brokers.
E*Trade is another big broker with comission-free stocks, ETFs, and options. It is the only company outside Vanguard itself which allows its clients to invest in Vanguard funds at no cost (a select group of them).
E*Trade is also one of our top picks for those looking to open a Solo 401k.
On this list, WiseBanyan is kind of a different choice – they are a Roboadvisor but they are free. They do have upsells where you can pay for automation and other items but their basic product allows you to invest free of charge.
You set up your account just like other roboadvisors, answer some questions and WiseBanyan manages the rest. You just deposit and don’t worry about the money. If this is what you’re looking for, of course, you should check them out.
Is there Free Options Trading?
There are a few different platforms that allow trading options. Firstly, Robinhood (find Robinhood detailed review here), about which we spoke above, allows free options trading.
Robinhood makes self-directed options Level 2 strategies (buying calls and puts, selling covered calls and puts), as well as self-directed options for Level 3 strategies such as fixed-risk spreads (credit spreads, iron condors). Not everyone has access to options trading on the Robinhood platform yet, but we expect full access in 2018.
Jellifin is another choice which isn’t completely free, but near to zero at least. Jellifin offers unlimited stock and options trading at a flat rate price every month. Currently, this is $9.99 a month for basic options trading and $19.99 a month to make more advanced strategies possible.
Historically, options trading can become expensive – especially since it catered to more advanced traders willing to pay for a platform and tools that are easy to use. With options trading going free, however, it has helped more people to get in on the advanced strategies that can work well for some experienced investors.
Why Investing For Free Matters
Fees are the number one factor that eats away at returns on investment. There are a few fee types:
- To buy and sell (commission – of which we are referring in this article)
- To own an investment (ratios of costs – which you want to minimize)
- The rates you pay to a counselor
Commissions can play a big part in how profitable your investment can be, particularly if you’re trading on just a little bit of money. Therefore commissions are significant in investing. For instance, if you’re spending $100 and paying a $7 commission – that’s the equivalent of losing 7 percent on day 1. Since on average the stock market returns about 7 percent – you’ll basically be able to break even for the whole year!
Even if you’ll invest $100,000 or more, charging commissions will still eat away at your profit. Especially given that there are free options to invest, why do you still pay for things you don’t need to?
All the money you just spent on fees is thrown away from your own returns. Then, if you combine this with the potential for other, recurring payments, such as the ratio of expenditures on your assets, you will really start to lose a lot of money in expenditures. This is not healthy.
You need to reduce expenditures like commissions to increase your future profits stemming from investing!
If they don’t charge anything, how do these businesses make money?
This is the first question that skeptics ask about those companies that offer free investment commissions! How will they possibly continue to exist if no money is paid to them? Even if they have investors backed by huge venture capital, the money will eventually run out, right?
Actually, when Robinhood first launched I was really worried about that. I spoke to the creator and asked him how he was going to make money – and what if he started running out of funds before he reached scale.
There are other ways for those companies to gain a profit, it turns out. Here are some of the most frequent ways:
- Loaning of securities owned by consumers
- Lending cash that is held by users
- They are paid for in-market transactions
- Margin loan interest
- Interest in other lending and loan lending
- Fees paid for related goods and services
These companies’ model is typically run lead, leverage technology, and raise money through other avenues in addition to charging commissions.
You can potentially also earn money by doing some of that stuff yourself. Lending securities for example is a common way for stockbrokers to make money. The short sellers borrow those securities when they sell short. Companies such as E*Trade allow you to share the lending income that they will receive if you allow them to sell your securities. It’s an added bonus with which you can make some extra investment capital.
Want to make money by borrowing your cash? Try using a site such as LendingClub that lets you provide people with micro-loans. You can lend as little as $25 per loan, and get the interest and principal paid back every month. It is a perfect way for you to make money by loans directly.
The bottom line is these businesses have a lot of ways to make profits. The names on this list prefer to concentrate on other ways of earning money, and not explicitly by charging fees to their clients.
It’s important to remember that fees and expenses are one of the main reasons why investors don’t over-perform the market over time (after investment selection, of course).
If you are going to invest in individual stocks, or mutual funds and non-commission-free ETFs, you need to find a broker that will allow you to trade for free. M1 Finance and Robinhood both offer good possible ways to do so. Robinhood is free and no-frills.