What's up, Everyone Ross here from Warrior Trading. so this has been a pretty crazy week. the ultimate battle in the Commission war and the race to zero now this week. Interactive Brokers TD Ameritrade Charles Schwab and Etrade have all announced they are going 0 Commission with a little disclaimer that 0 doesn't always mean 0.

So that's especially true with Interactive Brokers and their product offering because they've put out a totally new product that is a free Commission product and then they still have their regular product which is premium so you guys can check that out in the video specific to Interactive Brokers link is in the description. but right now we're gonna talk about each raid. Each raid was the last one to drop to 0. start with Interactive Brokers, then trial Schwab, then TD Ameritrade and lastly each raid Now I Have a soft spot in my heart for each raid because it's one of the brokers that I used when I was getting started.

But I will tell you and if you're someone that uses each raid, feel free to comment below what your thoughts are on this big change. I'll tell you when I switched from each raid to a direct access broker I thought it was a joke how fast the commit the the executions were I was like this isn't even real. This is insane. Literally, as quickly as I would press the button, boom, 2,000 shares would be right there.

Whereas with each raid and with Ameritrade I had gotten used to pressing the Buy button and sometimes having to wait a few seconds before the order pops up is Phil executing filled and then I can see what my price is. So I haven't trained with the trade for a really long time and at this point I'm not really interested in going back despite the zero Commission offer which is very appealing on the surface. But let's talk for a second about the real cost of free trades and let's do that by starting with a brief look at Robin Hood Alright so I'm gonna put Robin Hood here up on my screen. So Robin Hood came out in 2013 2013.

It comes on the scene, free trades and people were messaging me all the time. They're like are you gonna switch to Robin Hood Are you gonna get in on this is amazing. Zero commissions. It's awesome right? Well here's the problem.

You can see the pictures of the the Robin Hood app there on the screen. Robin Hood is a mobile app and so for me for the strategy that I use, I can't trade quickly on a mobile app and I just simply can't trust a mobile app to execute big orders and big trades. I've had days where I've made thirty forty thousand dollars and there is no way I would have been able to do that. trading on a phone, the amount of money and the amount of risk that I've taken.

it's just I can't trust it to an iPhone app. you know I'm sorry, it's not that I don't love my iPhone But I need the the same trading software that traders are using with a hundred million dollar type of positions and Goldman Sachs you know you want to use real software if you're going to try to compete with the the big traders out there and make some serious money. So Robin Hood for me, I was never interested in it I checked it out I Saw what it was about and what I realized was that the cost of free trades no Commission was that you didn't have very good member support or customer support. Number one, Number two: The The tool.

The app took away a lot of the things that are essentially a standard feature on real trading software, which is hotkeys: the ability to press a button and have an order go through level to market depth, the ability to see the depth of the market where all the buyers and sellers are stacked up. Without that, it's really hard to understand the sentiment behind a stock. and so when you pull out these basic tools, you can certainly drop the price of a platform down quite a bit, but to the point where it's not really practical for a trader. And so Robin Hood's headline here is Invest Commissioned Free.

Well, I Think that that's accurate investing Commission Free. Meaning, if you've got five hundred dollars and you want to buy a couple shares of Apple or Facebook, you can do That for free and that's cool. and I think that's what they really appeal to. But clearly over the last few years they have taken some market share away from Ameritrade and away from Etrade and some of the other brokers out there who offered great platforms but have charged anywhere from $5 to $10 per trade.

And obviously that adds up. And as a beginner trader or maybe a passive investor, that might be enough to say. Now I'm just gonna use my Robin Hood app and so the Commission War began and that now is six years ago. But it's really I think reached the peak today or this week with brokers dropping their Commission's left and right.

So it started with Interactive Brokers Last week, then Charles Schwab dropped to 0 TD Ameritrade stock dropped 36% and so they kind of I don't know, maybe reactively or what they said. Okay, we're going to 0 because they don't want to lose all of the client assets that they're holding. There's a lot of value to that. So let's think about this for a second.

E Trade currently generates and this is a stat that I pulled off of I think it was Bloomberg 17% of their income from commissions. The stock dropped about 20% which makes sense because you know they just lost by drop by going to free commissions. They just lost that that money. And they've got currently about three hundred and fifty billion dollars of client assets.

Three Hundred and Fifty billion dollars. That sounds like a lot. but T V-- Ameritrade has one point Three trillion Charles Schwab has three point Seven trillion Charles Schwab only makes about 8% of its revenue from commissions, so for them to cut commissions to zero, it's not going to take as big of a hit. And in fact, if it entices more people to open an account there and then they have more assets under management, ultimately, that's a win-win right? But for brokers that really focus primarily on the trading aspect and not investing products and things like that, the hit to them of these Commission wars is is bigger and more painful.

Certainly, with Ameritrade losing ten billion dollars of its market cap and dropping 36 percent now E trade with 346 billion, Three hundred Fifty billion of assets under management, you know the effect for them is also pretty significant and their stock has dropped quite a bit. Mike My real question is going to be now that they're offering zero Commission What does that mean for traders that are currently there? and I want you to comment below what you think that's gonna mean: Are they going to have to pull out some of the things that they've currently been giving for free and make that a premium product like the full, the the day trading platform the the Essure a pro platform? the complete market depth? you know I don't know One of the things that a lot of brokers have done and this is not brand new, but brokers have been doing this for a while is they don't charge you a routing fee if you let them use their smart route. Now the thing with smart routing is that it's really smart for the broker because it will route your order through a venue that will give the broker a little bit of a kickback on every share that passes through. It's a call it Ecn, credit or a rebate for adding liquidity to the market and so not to get overly complicated.

But right now if I put up a ten thousand share order to buy a stock like a ring central up there I could get paid about fifteen dollars from the exchange for putting my order out there actually from the market maker because I'm adding liquidity to the market I'm adding my money. So I get a little bit of a kickback. so when brokers drop, Commission's down well you know that they're gonna have to make it up somewhere else and so will they make it up through the order flow how they route your order. so they start getting a kickback and if they do, that's most likely going to come at the cost of execution quality for you the trader and that's why I prefer to only trade it brokers that allow direct access routing meaning I get to choose the route that I send my order through and I send it through a route that's best for me.

So I can get an awesome fill and awesome exit because ultimately that's gonna be a lot more important than making an extra ten or fifteen dollars on ten thousand shares. Right? Ten thousand shares. Every penny is a hundred dollars. am I Really gonna? You know, care about? you know, 15th of a penny in terms of profit for $15 No, not at all.

I would rather get perfect execution and so that means the brokers that I use are gonna be a little bit different. Now you can click the link below. I'm gonna have a link to the brokers that I currently recommend for active traders like myself and like many of you I Think a trade is great I Think that there's definitely some advantages there for a passive trader, someone who's not actively trading every single day. I Think you can do really well with these trade, but you know if you are trying to trade 3 to 5 times a day I Think you're gonna lose more in your execution price then you're gonna save in discounted Commission's and I could be wrong, but but that's that's my gut instinct on it.

and so I'm not likely to switch to E Trader Ameritrade as a result of these changes. and I don't suppose that a lot of people will switch, but I Think what? These brokers are really afraid of is people leaving them right because then that's less money that they've got in client assets. And so you look at some of the other brokers right now that they haven't made any announcements yet. A broker like Fidelity? well, you know Fidelity's got 2.5 trillion dollars in assets under management, so they're right up there next to Charles Schwab Which if we were going to guess or if I was gonna guess, it would make me think that the percentage of revenue that they get from commissions is probably pretty low.

so it probably wouldn't cost them as much to go down to a zero Commission model. But you look at a broker like Lightspeed or center Point. Well, those are brokers that really cater to active traders and so it's very unlikely that they're gonna drop to a zero Commission model because it just wouldn't make sense. There will always be demand for those types of brokers that offer the best tools direct access routing and hotkeys because experienced traders professional trainers are gonna need them.

So I'd really love to hear your thoughts on these big changes with Treet Ameritrade Interact Brokers Charles Schwab. you know it's it's some really interesting stuff. I I Think it's you know, ultimately gonna be good for most traders. but I Don't want you guys to think that free is really free because there is a cost to these free trades.

Alright, so questions, comments, leave them below and I'll see you guys in the next video if you're still watching. You must have really enjoyed that video. So why not subscribe and get email alerts any time? I upload new content. Remember when you subscribe, you become a member of the Warrior Trading family.