Commission-Free Trading

Commission-free trading, also called zero-commission trading, is offered by some discountDiscount When something sells for less than its normal price.+ read full definition brokers. You can buy and sell stocks or exchange-traded funds (ETFs) without paying a trading fee. Fees can impact your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition returns, but there can be other costs to consider.

The right investment platform for you can depend on many factors, in addition to trading costs.

Some brokers have limitations or conditions such as requiring a minimum tradeTrade The process where one person or party buys an investment from another.+ read full definition size, maintaining a minimum accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition balance, or restricting commission-free trading to certain securities or certain number or types of trades.

It is important that you understand what commission-free trading might involve before you investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition.

3 considerations for commission-free trading

While commission-free trading has its benefits, remember these 3 tips to help you make informed investment decisions.

1. Understand the other costs

While there may be no commission on stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition trades whether buying or selling through some firms, others may charge a commission when selling. There might be other costs to consider such as foreign currency exchange (FX) and account feesAccount fees The fees you pay to a financial institution for transactions and other services related to the operation of an account.+ read full definition (for example, inactivity fees, fees if you don’t make a certain number of trades in a month or if your account balance falls below or exceeds a certain level). There could also be trading fees for other types of securities or derivatives, such as optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition. Some brokers offer additional features such as real-time quotes through one-time fees or ongoing paid subscriptions.

2. Avoid overtrading

You may be tempted to buy and sell stocks more often than you should. For long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition investors, frequent short-term trades could have a negative impact on your portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition. It can be difficult to time the market, and you may find yourself buying or selling stocks often at the wrong time. The bid-ask spreadBid-ask spread The gap between the price a buyer is willing to pay and the price a seller is willing to accept.+ read full definition could represent a more significant cost if you trade frequently.

3. Know what services they offer

Many brokers offer additional services such as wealth management, financial advice and taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition preparation. These services can be helpful beyond just selecting a brokerBroker A registered person who brings together someone who wants to buy investments with someone who wants to sell. Brokers often charge a fee or commission for buying and selling investments for you.+ read full definition that offers no fees. It’s important to choose a broker that offers products and services that meet your overall financial needs.

Get started

Most brokers that offer commission-free trading are online platforms with self-directed trading accounts. This means the services are delivered through a website or mobile app, and you will be responsible for making your own investment decisions.

Find out what types of securities qualify for commission-free trading and if there are any conditions or limitations. Ask yourself if those types of securities match the ones you may consider in your portfolio.

Additional services or features may also be important to you. Find out what services are offered and if there are additional fees, how much you may have to pay.

If it is your first time investing, some brokers provide limited-time practice accounts to help you become familiar with trading and the platform’s interface. You can decide if the platform is easy for you to navigate. Practice accounts typically provide you with virtual money (currency with no value) and simulate trades using real-world data.

Payment for order flow

Payment for order flow, or PFOF, is not allowed in Canada. In some countries, this practice is permitted and brokers may receive compensation for routing your stock trade to a third-party organization for execution.

Difference between Canada and the U.S.

You’ll want to keep in mind that trading rules and practices differ in some respects in Canada compared to other countries such as the United States. Differences in trading practices that are not permitted in Canada (such as payment for order flow) may subsidize commission-free trading in other countries.

In Canada, very few dealers offer no commission for trading securities. Commission-free trading is primarily offered by online discount brokers (also called order-execution-only firms [OEO]) in Canada.

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