Commission-free trading has skyrocketed in popularity in the US. Pioneered by Fintech startup, Robinhood, commission-free trades has revolutionised the world of investing there.
It removes the frictional cost of investing in stocks and ETFs, making investing accessible to anyone and everyone.
For long-term investors, commission-free trading is great. Zero trading fees mean higher returns. It also “democratises” trading such that anyone, even those with a few hundred dollars to spare, can start investing in a diversified portfolio.
But what’s the catch?
Although is it hard to argue with the obvious benefits of commission-free trading, there’s a catch: It creates short-term trading behaviour.
In the stock markets, there’s data to show that long-term investors tend to do better than those who move in and out of the market.
Investors are traditionally bad market timers and tend to buy during a market peak and sell at a market bottom. This short-term