Zero Commission Isn’t the Same as Free in Europe

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The Effect of Fees

In 2019 something happened that totally changed the investing world. The largest online brokers like Charles Schwab & Robinhood began offering no-fee stock trading to retail investors, and it’s easy to see that it changed the stock market.

So, Why did they do it? Well in the past decade, people have become increasingly aware of the effect that fees have on their investments.

For example, Imagine you have $100,000 invested. If the account earned 6% a year for the next 25 years and had no costs or fees, you’d end up with about $430,000.

If, on the other hand, you paid 2% a year in costs, after 25 years you’d only have about $260,000 – nearly half!

Because of this, more people than ever are taking control their own investments – becoming DIY investors – taking control of their own financial future. They could be stock-picking, index investing, or algorithmic trading using a platform like Aikido Finance.

But fees don’t only come from portfolio managers, they also come from transaction costs on trades – the money you pay to the broker for executing the buying or selling of shares.

This is why the race to zero fees began. It was a noble goal. But there are things that you are not being told about. The wool is being pulled over your eyes, especially if you live in Europe.

Check out this table of broker comparisons US Stock Trading Costs for UK Residents.

Degiro announce zero fees

In November, Degiro announced Zero fees – this is a big deal, and they were one of the very first European brokers do take that step. What they subtly did under the hub was to increase the currency conversion rate by 250%, up to 0.25%. What this does in reality is shoot up the total trade cost without you really realising it.

So if we do a trade of 100 Shares amounting to £5000, we come in with costs of nearly £13.

eToro is the next step up, and with a 0.5% FX fee, your total trade cost is coming in at 25£.

But Degiro and eToro are by no means the worst, in fact, it gets a lot worse as you move down the list.

By the way, this is not just the UK, but very similar for all of Europe.

The Solution

So what’s the solution? It’s simple, use a more transparent, cost-effective broker. It’s no secret that I’m a big proponent of Interactive Brokers. I mean a trade of 100 shares amounting to €5000 comes in with total costs at €2.40. There’s no comparison.

So next time you see ads for zero fees, look under the hood and check out whats really going on.

If you’re interested in getting started with Interactive brokers you can check out this article on how to quickly setup an account in Europe.

The last reason of course why IBKR is pretty rad, is because it integrates with Aikido Finance – so you can start algorithmic trading lighting quick without any coding.

More To Explore

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