The Impact of Zero Commissions on Retail Trading and Execution

It seems now is the best tie to be a retail day trader.

Several of the major retail brokerages such as TD Ameritrade, Schwab and E*trade have all offered users zero commissions on trades – making it ultra affordable to trade and grow their ancillary businesses such as research and advisory. But has this come at a cost and is it bad for the markets?

Not so, says Greenwich Associates, who recently published a paper discussing the recent commission reduction actions taken by the retail brokerages.As they note in an executive summary for their latest report, “The Impact of Zero Commissions on Retail Trading
and Execution,” in 35 years of regulation not a thing has occurred to help reduce commissions or promote cost savings. Conversely, they noted that zero commissions has driven double-digit increases in fourth quarter trading volumes.

“Beginning in September of 2019, major retail brokerage firms dropped their commissions to zero. Although other players had previously offered trading for free, the sudden move to zero seemed shocking. On reflection, however, this move was the natural progression of regulatory and competitive forces over the course of decades.,” Greenwich writes.

“Now that zero commissions are part of the landscape, it is important to understand how we got here and what to expect next. Greenwich Associates believes that the future looks bright for retail traders, although attention needs to be paid to how retail brokerages continue to monetize those relationships. We also examine the role of the market maker in providing services to retail brokers. Overall, we find that it has never been better for the retail trader, which is not likely to change in the near future.”

Thee fill report is available for purchase from Greenwich Associates directly here