Best commission-free brokers for cost-effective trading strategies

Are there online brokers without commissions? Undoubtedly, within the realm of investments, commissions play a significant role.

Fortunately, there is a growing number of brokers offering zero commissions, enabling investors to derive greater advantages from their transactions. Nevertheless, with such a multitude of options at hand, it can prove challenging to discern the optimal broker suited to individual investment profiles.

Hence, this article delves into the best commission-free brokers, what their main features are, and how you can benefit from their offerings.

What does a broker do and how much does it charge me?

A broker acts as the intermediary connecting individuals with the market. In return for facilitating the purchase and sale of various financial products, they charge variable fees. This serves as the broker’s means of generating income

The main costs that a broker can charge you are:

A) Trading Costs

• Commissions for buying and/or selling assets (usually stocks)
• Spreads (the difference between buy and sell price of an asset)
• Sales fee (usually for funds)
• Currency exchange fee

B) Non-Trading Costs

• Withdrawal or deposit fees
• Account opening or maintenance fees
• Inactivity fee
• Research fee
• Exit fee (i.e., for closing your account)

What does a commission-free broker mean?

Until a few years ago, brokers were predominantly affiliated with banking institutions, resulting in considerably high commissions. Furthermore, investing in the stock market was not as widespread as it is today, and the limited competition allowed for these elevated costs.

However, the entry of new competitors into the fintech industry has paved the way for commission-free brokers. With the advent of these new brokers, investors have transitioned from paying substantial sums to conduct operations to scarcely expending a few pence or less per transaction.

Operating without commissions facilitates higher long-term returns for investors, as commissions are one of the main factors diminishing profits over time. Hence, operating without commissions entails the ability to execute transactions without any cost, aside from the spread and occasional stock exchange fees (and possibly exchange rate fees).

How do commission-free brokers make money?

It is evident why commission-free transactions appeal to investors, but the question arises: how do commission-free brokers generate revenue?

With minimal costs, many individuals question the profitability and sustainability of these brokers in the long run. As we have observed, trading in financial markets entails unavoidable expenses. When trading on the stock exchange, there are multiple intermediaries involved, and their services come at a cost.

It is simply impossible to provide an intermediary service without any charges. The shift towards commission-free trading has determined brokers to engage in other activities to secure profits. Among the traditional approaches, we encounter fees for personalised services, phone or email orders, currency exchange, and cash withdrawals.

Spreads

The main source of income for many commission-free brokers is the spread. This cost is the difference between the buy and sell price on the broker’s platform. For example, you want to buy ABC stock priced at $10.02. To sell the ABC stock, the price is $10.00. The difference of $0.02 is the broker’s revenue.

Derivatives and leverage

Commission-free brokers are usually market makers. This means that they act as a counterparty to the trader’s positions. In other words, the trader does not buy and sell directly on the market, but with the broker. Derivatives and leverage can be quite risky for novice traders or investors.

These multiply both the potential gains and the potential losses – and each order nonetheless results in additional gains for the broker. Also, positions open overnight are subject to swap fees. Similarly, with leverage, many brokers charge extra fees (as the trader essentially borrows the funds from the broker itself).

Interest on cash balances

Furthermore, certain commission-free brokers have ventured into offering interest payments on available cash balances. Prominent platforms have the capability to utilise surplus cash from an account by investing it in assets or lending it to others, akin to banks.

In essence, brokers have begun offering “cash management” accounts, resembling savings accounts, where clients’ funds are transferred to affiliated banks, generating interest. By retaining a significant portion of these interest earnings, brokers generate extra profit.

Other sources of profits

Commission-free brokers have devised new approaches to ensure profitability, such as offering monthly subscription services for premium features, charging fees for currency exchange, providing access to real-time data, or utilising clients’ assets as collateral to secure funds.

What online brokers charge 0% commissions?

One of the first international online brokers to introduce commission-free trading emerged in 2013, and it originated in the United States. This pioneering online broker is Robinhood, which revolutionised the industry by offering free trading for shares.

This marked the beginning of a price war among brokers, ultimately benefiting customers, as they can now engage in stock market transactions with remarkably low and competitive costs. Since then, numerous online brokers offering commission-free services have emerged.

Here are the best zero-commissions brokers:

Broker	Commission	Spread
XTB	£0	+0.35 pips
DEGIRO	£0	Low
eToro	£0	+1 pip

Let’s have a closer look at some of the best commission-free brokers in the UK.

XTB

The Polish broker has distinguished itself as one of the pioneers in completely eliminating commissions for over 5,000 shares it offers. Check out our in-depth XTB review to find out more details about its cost structure.

Trading costs:

✅XTB does not charge commissions (only competitive spreads)

✅No fee for account setup

✅£0 minimum deposit

Other costs:

❌ Withdrawal/deposits are free only over £50

❌ Inactivity fee of £10 after 12 months of inactivity

eToro

eToro, the broker credited with introducing the concept of copy trading, has played a significant role in popularising commission-free trading and investment. Have a look at this eToro review for more insight into its key features, advantages, and costs.

Trading costs:

✅ 0% commissions for trading (spread only)

✅ £0 fee for research, copy trading, and more

✅ £0 costs for opening an account or depositing cash

Other costs:

❌ Minimum deposit of $50

❌ $5 commission for cash withdrawal

DEGIRO

DEGIRO is one of the leading brokers in Europe. While it does charge some commissions for stocks, it also has commission-free assets – particularly a large selection of exchange-traded funds.

Trading costs:

✅0% commissions for selected ETFs (handling fee of €1 applies)

✅€0 for real-time quotes

Other costs:

❌Commission of 1€ for each transaction as a handling fee

❌Commission for currency exchange of 0.25%

HeyTrade

HeyTrade is an investment broker designed for long-term portfolios. There are essentially two types of accounts, one for retail investors and one for professionals with large capital. Here are the basics of the retail account, known as Lite:

Trading costs:

✅ There are no commissions for US stocks and 100 ETFs

Other costs:

❌Currency conversion fee of 0.5%

❌1% fee for deposits and withdrawals via credit or debit card

❌0.1% fee for European securities

Other articles & recommendations

Commission-free brokers may have other ways of charging traders and investors. Have a look at other types of brokers specialised in different niches that may offer lower costs for specific asset classes:

• Best brokers for CFDs
• Best brokers for options
• Best brokers for beginners
• Best forex brokers
• Best ETF brokers
• Best copytrading brokers
• Best brokers for intraday trading

Summary: commission-free brokers

To conclude, commission-free brokers can be advantageous for beginners with limited capital. If you plan to make relatively small trades, a fixed fee as a commission per trade can wipe out most if not all your profit from the trade. Such brokers are also recommended if your strategy entails frequent small trades.

However, if you plan to make large, infrequent trades, you may prefer to cover a fixed-fee commission per trade instead.

Another benefit is that these brokers typically offer a limited market selection, focusing primarily on major stocks from the US market. This can be advantageous for beginners, as it helps avoid more volatile and risky investments that can lead to losses early on.

Commission-free brokers can also be suitable for long-term investors employing dividend investment strategies or periodic savings plans.

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