Commission-Free ETF Trading

Exchange Traded Funds (ETFs) have lower expense ratios, usually around 0.3%, than most mutual funds. Traditional open-end funds charge around 1.5% to 2% on average. But those low ETF expense ratios are offset by commissions on both ends of transactions. Mutual-fund investors aren't typically charged commissions for buying or selling. In the past, ETFs were largely used by big institutional investors because they could absorb the costs of commissions, but now with free trading, ETFs are readily available to smaller investors and for them the cost is becoming an issue to consider.

Last October, Zecco.com became the first U.S. online broker to offer free equity trading and thereafter Bank of America and Wells Fargo also followed the suit. Zecco is offering free trading without any minimum requirements. Bank of America is requiring that investors put at least $25,000 in either a money market or savings account. Any money going into actual investment accounts, however, is not counted towards reaching those minimums. Wells Fargo has also set $25,000 minimum for free equity and ETF trades. But it will allow a portion of mortgages held at the bank and other investment assets to count against that level. Obviously, such schemes have been criticized because investors need to keep a relatively large amount in one of the bank's savings plans instead of a higher-performing investment account just to avail of this offer.
While Wells Fargo is allowing 100 free trades per account a year, Bank of America offers 360 free trades per year. Zecco is allowing up to 480 trades by individuals each year. It also has no minimums for IRAs (Individual Retirement Accounts) or $2,500 or more in assets in brokerage accounts.

Costs eat away a sizable portion of our investment gain (and usually we fail to see that). It needs to be seriously looked into. Hopefully, other financial institutions would also follow the trend of free trade without any tag attached -- that has been started by Zecco.