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Commission-Free Trading Is Shaping the Investment Landscape

Commission-Free Trading Is Shaping the Investment Landscape

The internet has changed the way that people do almost everything and, for the most part, that means cheaper, better, and faster. It’s not surprising that our expectations are higher when it comes to customer service, usability, trading, and investing. Technology has opened up the world of investing to all and commission-free trading is shaping the landscape.

Changing consumer attitudes toward investing

Investing used to be something that only wealthy people had access to, particularly when it came to investing in hot new startups, precious real estate, and art. It was a gentleman’s club with the best opportunities not open to many people. Today, investing is becoming more accessible to all. People don’t need to be ultra-wealthy to invest in exciting opportunities.

We have seen this through the whole ICO boom with cryptocurrencies and now the blockchain companies that allow investors to fractionally own assets and transfer them easily and frictionlessly. We have also seen that it has become easier for people to invest in traditional asset classes like stocks, bonds, Forex, and gold. They no longer need to find a broker and pay hefty fees to do this.

There are plenty of webs and apps that let them invest and their attitudes are changing. One-quarter of Americans with internet access are self-directed investors and retail traders. Platforms like Robinhood and eToro (and countless others) make it easier for them to invest without professional advice or help.

More and more sites are now removing the commissions as well for retail traders. This helps foster and enable a different style of investing and trading since traders can make small profits from aggressive trading and win on small price movements without having to pay commissions.

Technology is facilitating this and consumers are realizing that with some research and practice, they can actually trade and invest and make some additional income.

Commission-Free Trading Is Changing the Industry

Commission-free trading is a paradise for short-term traders and scalpers. These are the people that prefer to assume less risk than swing and position traders and open and close multiple positions in a day. Being able to trade without commission changes the game as they can build up a lot of small profits over time and not see them wiped out due to commissions.

After the undeniable success of Robinhood (now valued at $7 billion with over 4 million active users), other major brokerage companies have removed the commissions as well, including ETRADE.

They are seeing that creating higher liquidity and encouraging more traders to their platform is simply a better model than charging fees on every trade. After all, the most important thing for any exchange is liquidity–how easy it is for traders to enter and exit a position. 

Without liquidity, the exchange will die as users will flock from it. By removing commission fees you are incentivizing more people to try their hand at trading. More users, more traders, more liquidity.

ETRADE may be losing a high percentage of its income by removing the fees, but it will be gaining more users and creating tight bid-ask spreads. This is far more valuable to them in the long run and they will probably start to offer new users additional services and additional ways of recovering income.

Commission-Free Trading in Cryptocurrency

On 30 November, Digitex Futures will be launching its public Bitcoin futures testnet. This will be the first commission-free futures exchange that the cryptocurrency markets have seen and CEO Adam Todd is hoping that it will generate the same positive side effects as Robinhood. That is, highly active, liquid markets with tight bid/ask spreads and a giant pool of traders.

He said,

“We will change the cryptocurrency trading industry by removing commissions, No one has done that yet, but we don’t hide the cost. There is a cost. You can’t just run an exchange and have no costs involved. With Digitex, traders must trade in our native exchange token DGTX. This creates a constant demand for the token and increases its value.”

The Digitex revenue model is token issuance which means that each year, token holders will vote on how many new DGTX to mint to cover costs. This, Todd explains, will have a small inflationary cost effect on the token. However,

“That will be spread out among token holders once a year. It is a much better way of doing it than punishing your most active traders with commission fees on every trade that makes scalping and high-frequency trading almost impossible.”

Commission-Free Trading Will Be the Next Trend

The traditional investment and trading world has seen huge benefits from commission-free trading and it looks as if these will soon be coming over to crypto. According to Adam Todd, commission-free trading will be a big trend as soon as other exchanges see its potential on the Digitex exchange.

“We firmly believe that when other exchanges see the power in removing commissions for creating active liquid markets, more will follow suit. When it comes to traditional assets like stocks and bonds, the same applies. Companies are valued differently these days. Look at Uber, it is valued in the billions but actually loses money. It is valued on its userbase and more and more companies are becoming aware of this.”

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