Let’s get straight to it. What is this zero commission investing?
Surely you think that the major source of income for brokers is commissions. Well, that’s not true. Commissions are only about 25% of your brokers revenue.
There are 4 types of commissions for making trades in the stock market:
- Regulatory Fee : The fee you pay to the exchange for accessing the market.
- Execution Commission: The commission you pay your broker for executing an order. This is known as the front-office.
- Maintenance Commission: The commission you pay your broker for maintaining an order. This is also known as middle and back-office.
- Custodial Fee: The fee you pay to the broker for the safekeeping of your shares in a solvent financial institution.
The exchange fee, liquidation, and custodial are obligatory fees, but together they amount to a few cents.
But what would happen if one could use computers to automate all the work of the front, middle, and back-office of broker?