Are Low Cost Stock Trades From Discount Brokerages Like Zecco, Sharebuilder, And SOGOInvest Worth It?
First let me assure you that ALL these companies offering this KNOW how to play the game. They’re not going to lose money on a deal. It’s just like when the casinos offer you a “comp” if you play long enough. They know the odds of you winning aren’t high, but if they dangle the proverbial carrot in front of your nose to stay longer, in the back of your mind you’re going to be thinking that. Casinos know that the longer they keep you at the table, the more likely THEY’LL win YOUR money; not the opposite. So if they offer a bonus or “comp” only if you stay for an hour, well, you get the point, and so do they.
It’s the same thing with the “free stock trades”. They’re dangling the carrot in front of you to sign up knowing that the $ isn’t made from the actual trade; they’re banking on you taking the low cost trade and getting your money into their banks; here is a quick 15 question list you should ask yourself before jumping onboard with free trades:
1. Are you sure there aren’t “maintenance fees” to sign up?
2. How about account limitations such as you need to keep it open for “x” amount of years to qualify?
3. Do you need to have a minimum amount to get in on?
4. Can you trade ANY stock or mutual fund with a ticker symbol? (Zecco I know has limitations on this)
5. Are there inactivity fees?
6. What about certain types of accounts? For instance, if you open a ROTH IRA can you use the free trades? All tickers?
7. What if you open a ROTH, a standard account, and an account for your wife, do you get free trades for all of them? I’d bet not.
8. How about your credit score? You think they give these free trades away for free? I’d ask if you’re looking at a hard credit hit for them.
9. How about your dividend paying stocks? Are there fees to re-invest that? Likely; I’d inquire about that also.
10. How about ACAT (Automatic Customer Account Transfer) fees?
11. Are all trades free or just BUY options? Can you also SELL with that same fee? I’d ask.
12. Do you get a deal to go with Wells Fargo or Bank of America if you’ve already got an account open with them?
13. Is there a backend fee when you take your $ out of their brokerage?
14. Is there customer service local? If you have a techinical issue, where do you go?
15. Is there a difference between being able to fund the account, and being able to make trades. Be careful, some have different rules so once you get it, you can only trade certain pieces?
A few other people have had issues with it It also eats at the core of the average Joe Investor should be doing, buying and holding. You shouldn’t be actively trading so much anyway (unless you’re trading penny stocks or daytrading and are GOOD at it). You should be buying and holding, not using the 30 free monthly trades anyway. It’s just going to keep you glued to the computer monitor. It might be a good time to consider the age old phrase “nothing in life is free”, when considering using a discount brokerage. I’m not saying they’re bad, just that I’d investigate before jumping in. I’ve read a handful of blogs (MyMoneyBlog, TheMoneyBlogs, ValueBlog, GrumpStump, and CornerOffice) that have had some bad experiences so far. Another cliche rings a bell “you get what you pay for”.
Anyone else had bad experiences with the discount brokerages? Anyone have any more tips to look for when using these brokerages?