Four Hidden Costs of Zero-Commission Brokers

Skip to after zero-commission broker explanation: 3:48

In today's video, I explain how zero-commission brokers aren't "free."

This video is sponsored by Noa

DISCLAIMER:
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.

[JavyVidana]

But but but they give me fireworks when I buy something!!

[SirD]

1. Bid Ask Spread
2. Foreign Exchange
3. Payment for order flow
4. Incentivization to trade

[aribolab]

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

[Krackerlack]

thanks for having this background Richard
-my eyes

[rbm]

You helped me pass my brokerage exam! This is the best investing channel on YouTube!

[trisshinjji]

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.

[chancerobinson]

I agree with all four, as well as your caveats. Very well done! “When the product is free, you are the product!”

[jermaineconcern]

There's no such thing as a plain bagel, on today's free lunch.

[CanaldoHolder]

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.

[hristolakov]

I almost heard "This video has been sponsored by No one." lol I am missing your videos.

[thisdyingsoul]

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.

[veeeevo]

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.

[TheDanaYiShow]

"If it's free to use, you are the product" - someone on the internet somewhere

[PhantomO]

This channel is dope. Great job on this video. I legit sat through the video taking notes like a student.

[TheRealTimMeredith]

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.

[irisobobo]

Hey man! I really like the background in this video! Just saying... Cheers!

[jballin]

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

[adammacdonald]

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

[melsoderlund]

This is by far the best finance content on YouTube! Thank you, Plain Bagle. There’s so much bad information on YouTube now. I get recommended “get rich quick” videos everyday!

You’re doing the Lord’s work.

[RonakDhakan]

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.