I have noticed recently some of the biggest spread betting companies are now also starting to offer share dealing accounts! Furthermore I have noticedsome of these accounts are now also offering 0% commission on any share dealing as well!
This is something I feel will only continue to grow over the next few years, and with it a new and growing market of small / cost savvy investors looking for a good deal and an easy way to get into trading for the first time. Go back a couple of years and we saw a similar thing happen with everyday banking, this has resulted in companies like Monzo and Starling simplifying the process of opening up and running a current account and in turn making it into a simple and cost effective service via a mobile app.
Whilst 0% commission might seem like a good thing (and for many it will be), having thought about this in more depth I think for certain people this might not be as good as it first appears. Firstly, nothing is really free and these companies might have many stealth ways they can make money from their customers such as charging withdrawal fees and high foreign exchange commissions amongst other things, these fees might even be higher than those on platforms which charge a fixed commission!
But for newer investors there’s an even bigger catch than that of an obscure fee being charged here and there, one which will almost certainly outweigh any commission savings if you don’t get it under control early on! This is the tenancy to over trade!
Here’s the thing, if your already have experience investing in shares and funds and have reached a point where you understand what you are doing, then these accounts might actually be a good thing. This is especially true if you are an active investor and make several trades or more every month as a part of building up your wealth. Also, at least in the case of Trading212 they offer an ISA account which is an important vehicle for helping to build wealth over the long term for those disciplined enough to use usch an account properly.
On the other hand, I think this new trend could potentially be a bad thing for newer, less experienced investors looking to get into trading / investing for the first time. Let me explain, you see, one trait which almost everyone shares when they start trading is a temptation to press the “deal” button, undeniably, at the beginning of your trading life, there will be a certain excitement when you press this button and make your first few trades. This (in my belief at least) is linked to the belief that after doing all of the hard work in researching an opportunity, this final step of pressing the deal button will be the step that turns all of that hard work into some actual profit!
Now enthusiasm is great, but I believe one of the key things in becoming successful is the ability to carefully research and make make measured decisions including when and how much to trade. One important consideration for me when I first started trading (before these zero fee accounts) was the knowledge that each time I pressed the deal button would cost me approx £12 in commission and that I would, as such, need to be very careful and make sure this was simply a case of executing the trade I had planned, nothing more. Take away this cost (which is relatively high to a beginner) and suddenly the temptation to throw money about and make crazy, speculative trades can become too hard to resist leading to lack of discipline and lost money!
Now of course (as I mentioned earlier) low / zero commission accounts will hopefully become more commonplace and be of great value to more experienced investors. If you are new to trading however, please be very careful not to get sucked into the trap of over trading too early on as this will only end in disaster longer term. Better still, find a share dealing service which offers a monthly, reduced commision, purchase plan and drip-feed your money into the market bit-by-bit over the longer, this way, at least, it removes the temptation to over trade and you can focus more on researching interesting opportunities instead of “playing about” with you free trading software or app!