Source: The College Investor
It’s easier than ever to find and use free stock trading apps! But you have to know what tools to use – otherwise you might have a “gotcha” moment.
Some of the most popular firms that advertise “get started with just $5” can end up charging you huge fees as a percentage of what you invest. In fact, we’ve even seen some really dishonest financial advisors charging thousands!
For the investor that wants to buy individual stocks, there are still places that allow you to buy stocks online for free. Here’s our list.
Where To Buy Stocks Online For Free
Right now, there are only a few ways to buy stocks online for free (i.e. commission-free). However, technology is continuing to make investing cheaper, and more companies are fighting each other with lower prices. We should continue to see the cost of buying stocks online drop at most companies over the next few years.
1. Robinhood
Robinhood is an app for your phone (both Android and iPhone) that allows you to trade stocks for free. We like Robinhood because it really does allow for free trades – and that’s awesome. They have also been adding in a lot of features that make it a compelling investment platform.
If you’re investing a low amount of money, that can add up to a really big savings as a part of your portfolio expenses.
Plus, you get a free stock when you open an account at Robinhood!
Open an Account at Robinhood here >>
Get a free share of stock!
2. Fidelity
Fidelity is one of our favorite picks for a lot of reasons. Beyond the fact that it’s a full service brokerage, allows you to open and use every type of account, every type of investment, and has excellent customer service, they also offer commission free stock, ETF, and options trading.
They also make it easy to do just about everything, both on mobile and online. They have a lot of locations around the United States as well, should you need professional help. Check out our full Fidelity review here.
So, if you’re looking for a brokerage to invest with for the long run, we strongly recommend Fidelity. Plus, investing in stocks is commission-free!
3. Charles Schwab
Charles Schwab is another broker that has joined the commission-free investing arena – with commission free stock, ETF, and options trades.
Schwab also consistently has a great sign up bonus, with lower minimums to get the same bonus as other brokers. Plus, when they acquired TD Ameritrade, they also acquired Thinkorswim, which is one of the best trading platforms available.
Check out our full Charles Schwab review.
4. Public.com
Public is another free investing platform that has put a huge focus on the social aspect of investing and education. As a result of using influencers and education, Public has been significantly growing their awareness.
Public has a solid investing app – you can invest in any asset: from stocks, ETFs, crypto, fine art, collectibles, and more – all in one place, including fractional shares and options. They also offer desktop support, which is incredibly useful for things like looking at brokerage statements or tax forms.
They also advertise themselves as being one of the few investment brokerage firms that doesn’t do Payment for Order Flow.
Read out full Public review here.
5. Webull
Webull is one of the newest players in the US free stock trading space, but they have been playing in the space worldwide for a few years.
Unlike Robinhood, which frowns on trading, Webull has a lot of tools and resources to help active traders use their platform.
One of the things that sets them apart is their strong technical charts and tools. However, Webull currently doesn’t support options trading, which is one area that Robinhood does.
Check out our full WeBull review to learn more.
Plus, if you open an account at Webull, you get a free share of stock!
Open an Account at Webull here >>
Get a free share of stock!
Other Free Investing Alternatives
While the options we discussed above are almost truly free ways to invest and buy stocks online, here are some other alternatives that have recently joined the commission-free investing game.
Ally Invest
Ally Invest is an alternative broker that also offers commission-free investing for stocks, ETFs, and options. They also have a large selection of commission-free and no load mutual funds.
If you don’t want to do-it-yourself, Ally Invest also has a solid option for robo-investing. Check out our full Ally Invest review.
E*TRADE From Morgan Stanley
E*TRADE is another major broker that has comission-free stocks, ETFs, and options. E*TRADE is the only company, outside of Vanguard itself, that allows it’s customers to invest in Vanguard funds at no cost (a select group of them).
E*Trade is also one of our top picks for people looking to open a Solo 401k.
Check out our full E*TRADE review and see if E*TRADE might make sense for you.
moomoo
moomoo is a startup investing app that is competing hard against Robinhood and Webull. They are delivering advanced trading on a mobile app.
And just like the other companies, they are offering commission-free stock investing. They are currently offering up to 15 free stocks for new investors!
Check out our full moomoo review and see if it might make sense for you.
Is There Free Options Trading?
There are a couple different platforms that allow options trading. First, Robinhood, which we talked about above, does allow options trading for free.
Robinhood allows Level 2 self-directed options strategies (buying calls and puts, selling covered calls and puts) as well as Level 3 self-directed options strategies such as fixed-risk spreads (credit spreads, iron condors).
Historically, options trading can get expensive – especially since it catered to more advanced traders willing to pay for a platform and easy to use tools. However, with options trading moving to free, it has allowed more people to get in on the advanced tactics that can work well for some savvy investors.
Check out our full list of the best options trading platforms here >>
Why Investing For Free Matters
The number one factor that eats away at investment returns is fees. There are a few types of fees:
1. The fees to buy and sell (commission – which we’re talking about in this article)
2. The fees to own an investment (expense ratios – which you want to minimize)
3. The fees you pay an advisor
Commissions can play a big role in how profitable your investing can be, especially if you’re only trading on a little bit of money. This is why commissions matter in investing. For example, if you’re investing $100, and pay a $7 commission – that’s the equivalent of losing 7% of your investment on day 1. Given that the stock market returns about 7% on average – you’re literally going to be lucky to break even for the entire year!
Even if you’re going to be investing $100,000 or more, paying commissions still eats away at your returns. Especially given the fact that there are free options available to invest, why are you still paying?
All that money that you spend on commissions just is tossed away from your own returns. Then, when you combine that with the potential for other, ongoing fees, like the expense ratio on your funds, you can really start losing a lot of money in expenses. That’s not good.
In order to maximize your potential profits from investing, you need to minimize expenses like commissions!
How Do These Companies Make Money If They Don’t Charge Anything?
This is the first question skeptics ask about these companies that offer commission free investing! How can they possibly continue to exist if they don’t charge any money. Even if they have huge venture capital backed investors, the money will eventually run out, right?
I was actually very concerned about this when Robinhood first launched. I spoke with the founder and asked him how he planned to make money – and what if he ran out of funding before he reached scale.
Well, there are more ways for these companies to make money. Here are some of the most popular ways:
- Lending user-owned securities
- Lending user-held cash
- They are paid for transactions in the market
- Interest on margin loans
- Interest on other loans and lending products
- Fees charged for ancillary products and services
The model of these companies is usually run lead, leverage technology, and earn money through other avenues besides charging commissions.
In fact, you can even earn money doing some of these things yourself. For example, lending securities is a common way that stock brokers make money. These securities are what the short sellers borrow when they sell short. Companies like E*TRADE allow you to split the lending profits they would earn with them if you allow them to sell your securities. It’s an added bonus that you can make some extra money investing with.
The bottom line is that there are lots of ways for these companies to make money. The names on this list have simply chosen to focus on making money other ways, and not charge commissions directly to their customers.
Final Thoughts
It’s important to remember that fees and expenses is one of the leading reason why investors don’t outperform the market over time (after, of course, investment selection). We’re tried all of these apps and can recommend them all for the reasons we’ve listed.
If you’re going to be investing in individual stocks, or mutual funds and ETFs that aren’t commission-free, you need to find a broker that allows you to trade for free.
If you’re looking for a major broker, we recommend Fidelity or Vanguard. You can also check out our list of the best online stock brokers to find one that meets your criteria.