Free trading is usually commission-free trading, where a broker does not charge a visible commission for eligible buy and sell orders. It does not mean investing has no costs or that trades are risk-free.
In the United States, many online brokers offer commission-free trading for stocks and exchange-traded funds, or ETFs. A $0 commission can still leave you paying other costs, including bid-ask spreads, fund expense ratios, margin interest, options contract fees, account fees and transfer charges.
Free Trading at a Glance
| Term | What it usually means | Costs that may still apply |
|---|---|---|
| Commission-free trading | No separate broker commission on eligible trades | Spreads, regulatory fees, fund expenses and account charges |
| Free brokerage account | No account-opening or maintenance fee under stated conditions | Transfer, wire, inactivity or margin fees |
| Free stock promotion | A broker gives a new customer a promotional share or cash reward | Eligibility rules, tax treatment and withdrawal restrictions |
| Free investing | A broad marketing phrase, not a precise cost description | Investment or account costs may still apply |
How Does Free Trading Work?
Free trading removes a stated commission from eligible orders. When you place an order, your brokerage platform sends it to an execution venue, such as an exchange, electronic communications network or market maker. The trade may be completed without a commission appearing on your transaction confirmation.
The broker may earn revenue in other ways. Depending on the firm and product, those sources can include:
- Payment for order flow from an execution venue
- The bid-ask spread or a markup
- Interest charged on margin loans
- Interest earned on customer cash
- Premium subscriptions, advice or other services
- Fees for options, transfers or account services
Payment for order flow means a broker receives compensation for routing customer orders to a particular trading venue. The practice can help support low or zero commissions, but it can also create potential conflicts when a broker chooses where to route orders. Brokers still have a duty to seek reasonably available best execution.
Is Free Trading Really Free?
No. Free trading normally removes one cost, the trading commission, rather than eliminating every cost.
Bid-Ask Spreads
The bid is the highest price a buyer is willing to pay. The ask is the lowest price at which a seller is willing to sell. The difference between them is the bid-ask spread.
For example, if a stock has a bid of $49.99 and an ask of $50.00, buying immediately at the ask and selling immediately at the bid would create a $0.01-per-share difference before considering any other costs.
Highly traded stocks and ETFs often have narrower spreads. Less liquid securities can have wider spreads, which makes commission-free trading less valuable.
ETF and Mutual Fund Expenses
An ETF can have an annual expense ratio that is deducted from the fund's assets. You may not see this as a separate bill, but it reduces the fund's return over time.
FINRA warns that zero-commission trading does not mean zero-cost investing because investment products can carry ongoing expenses.
Margin Interest
A margin account lets you borrow money from the broker to buy investments. The broker charges interest on that borrowing. Margin can increase potential gains, but it can also magnify losses.
Options-Related Charges
A broker may advertise commission-free stock trading while charging a per-contract fee for options. Options also involve risks and complexity that do not apply to simply buying shares.
Account and Transaction Fees
A brokerage may charge fees for:
- Wire transfers
- Transferring assets to another broker
- Closing an account
- Certain account types
- Paper statements
- Specialized services
- Some regulatory or exchange-related charges
The SEC recommends reviewing a broker's fee schedule and asking what you will pay to purchase, hold and sell an investment.
What Is the Difference Between Free Trading and Commission-Free Trading?
Commission-free trading is the more accurate term.
"Free trading" can suggest that the entire transaction has no cost. "Commission-free trading" specifically means the broker does not charge a stated commission for a qualifying trade.
A commission-free trade can still involve:
- A bid-ask spread
- An ETF expense ratio
- Margin interest
- An options contract fee
- A regulatory charge
- A tax consequence
Some products may also be excluded from a broker's commission-free offer. The terms depend on the broker, account type and investment product.
Which Investments May Qualify for Commission-Free Trading?
Stocks and ETFs are the investments most commonly included in commission-free offers. Depending on the broker, the offer may also apply to:
- U.S.-listed stocks
- Many ETFs
- Some fractional-share transactions
- Certain options or mutual fund transactions
Commission-free pricing may not apply in the same way to:
- Bonds
- Over-the-counter securities
- Foreign securities
- Mutual funds outside a broker's no-transaction-fee program
- Options contracts
- Futures
- Forex
- Cryptocurrency
- Broker-assisted trades
Forex shows why "commission-free" does not always mean cost-free. A forex dealer may build compensation into the bid-ask spread, charge a markup or apply both a spread and a commission.
Is Free Trading Good for Investors?
Commission-free trading is generally useful for self-directed investors because it can reduce the cost of buying and selling eligible investments. It should not be the only reason to choose a broker.
A lower commission matters most when you trade frequently or make small purchases where a fixed commission would represent a large percentage of the transaction.
For long-term investors, other factors may matter more:
- The expense ratios of available funds
- The quality and range of investments
- Account security and customer support
- Order execution and price improvement
- Margin rates, if you borrow
- Transfer and withdrawal fees
- Research and educational tools
- Whether the platform encourages excessive trading
FINRA cautions that easy, low-cost online trading can make it tempting to trade too often. Frequent trading can create additional spread costs, taxes and investment losses even when the broker charges no commission.
How Should You Compare Free Trading Platforms?
Compare brokers by total cost and service, not only by whether they advertise "free trades."
| Comparison factor | What to check |
|---|---|
| Eligible investments | Stocks, ETFs, options, mutual funds, bonds and other products |
| Trading costs | Commissions, contract fees, spreads and regulatory charges |
| Fund costs | Expense ratios and transaction fees |
| Account costs | Maintenance, inactivity, transfer and wire fees |
| Cash and margin | Interest paid on cash and charged on borrowed money |
| Execution | Order routing, speed and potential price improvement |
| Features | Fractional shares, recurring investments and research |
| Support | Customer service availability and quality |
| Account type | Taxable brokerage, IRA or other retirement account |
Bottom Line
Treat commission-free trading as one part of a broker comparison. The better choice is the broker that offers the investments, account features, execution, support and total cost that fit your needs.