$4.95 trading commissions: a good deal?

Yes, both for you and me and for Fidelity, which initiated the move down from $7.95.  Fidelity has quickly been followed by other discount brokers.

The reason for the reduction is the increasing popularity of ETFs with individuals who have been traditional buyers of no-load mutual funds–and who, because of this, aren’t used to paying commissions.  (Yes, the functional equivalent of trade commissions end up being deducted from mutual fund results through administrative expense charges, but people generally don’t notice this.)   Apparently, though, $4.95 is an acceptable number.

Fidelity, as a market maker in ETFs, will also earn a bid-asked spread on transactions.   In addition, the reports I’ve read suggest that the sponsor of an ETF can earn as much as 0.5% of assets annually through stock lending.  So forfeiting $3 on each trade won’t dent Fidelity’s bottom line, especially if this stimulates sales of in-house ETFs.

I think the main results of the move will be to lower our costs modestly and to hasten a bit the demise of traditional brokers.

 

 

 

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: