Bad News for Small Investors: Free Trades Are Out

Looks like there's no such thing as a free trade.

By SHARE

Sad news for small investors, including me: Zecco, which I once applauded in how-to columns on trading ETFs, is raising its requirements for free trades.

Starting in March, Zecco is raising its minimum asset balance for free trades from $2,500 to $25,000. That's a big jump--and a big setback--for investors who are just getting started. Customers will still be able to get 10 free trades a month, but the catch is that they must make at least 25 trades.

That last point is useless for just about everyone who's not a day trader. It's obviously an effort to boost trading during the economic crisis, points out TechCrunch, which voiced its concerns about Zecco's trading platform way back in 2006.

Here's why brokerage commissions matter to small investors, even those who buy and hold: Each time you have to place a buy or sell order, you pay a fee. That fee may be small, but it still eats away at your returns. Consider if you own a handful of ETFs, and you're playing it smart by dollar-cost averaging. That means you'll be paying a handful of fees on every trade, which in turn means you'll easily be shelling out $20 a month if you're adding to your portfolio monthly. That's a whopping $240 a year.

I'm not sure yet what I'll do with my account--paring back on ETFs is one option, and switching to index mutual funds might be another. At this point, I don't know of any other brokerages that offer free trades for less than a $25,000 minimum account balance. I'll keep you updated.