Fee-Free Stock Trading Makes a Comeback

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man trading in financial markets online at home
Alamy
As the Dow Jones Industrial Index keeps setting new record highs, individual investors are returning to the stock market in droves.

Four years of steady stock market growth have been capped by this year's 24 percent year-to-date rise on the Dow. Individual investors hoping to catch the rising tide have put $167 billion into stock mutual funds the stock market so far this year.

Leaving aside the question of whether that's a wise move -- investing after the market has hit an all-time high, rather than putting money to work after a correction when stocks are cheap -- there's a more pertinent question for these investors: What method will use to you invest your money in the market, and how much will it cost you?

"Free" Is a Nice Price

Would you believe it might cost you nothing at all to invest in the stock market -- at least as far as stock buying fees are concerned? It has been years since investors last saw companies offering them truly commission-free online brokerage services. Years since sites like Freetrade.com and Zecco.com went belly up. (Zecco got bought by TradeKing, and upped its commission cost from $0 to $4.95).

But now a new site says it's ready to give the free trading business model another whirl -- and its name is "Loyal3."

Operating out of offices in San Francisco and Haverhill, Mass., private equity-backed Loyal3 is putting its unique stamp on the zero-fee stock trading game, featuring:
  • a $10 minimum balance to open an account
  • the option to buy stocks with a credit card
  • the ability to buy fractions of a share (if, for example, if the $515 price tag on a whole share of Apple (AAPL) is beyond your budget, you can buy just a slice)
  • $0 cost to buy a stock, or to sell a stock, too -- even for IPOs
  • and for new investors nervous about privacy, a guarantee that the company uses "military grade encryption to protect your data" and "will not provide your information to third parties," either.
Simplify, Simplify

There are a few caveats, of course. (To see many of the details on how Loyal3 works, you have to watch the "how are there no fees" video, then freeze it at the 40 second mark to read all the fine print.)

To keep costs low, Loyal3 offers only a few ultra-popular stocks to choose from. 53 to be precise, including "the 50 most 'liked' public companies on Facebook." (And yes, that includes Facebook (FB) itself. Also Apple and Amazon.com (AMZN). And Coca-Cola (KO), Walt Disney (DIS), and Microsoft (MSFT) to boot.

Each potential investment has its own brightly colored button that you push to buy it, so you don't have to worry about remembering any pesky stock ticker symbols, either.

And for folks who object that in a world of 10,000 publicly traded companies, a menu featuring only 53 is too limiting? Well, not everyone wants to wade through 10,000 choices in search of an investment. And Loyal3 has put most of the biggies on its menu already. Chances are good that these are the stocks most likely to interest new stock investors.

This limited menu of stock choices may be a big part of how Loyal3 is able to offer stock trading free of charge. Management explains that it generates revenues not by charging fees to customers, but by "providing services to companies, and charging for those services." The services in question aren't explained in detail, but include increasing "brand engagement" in those companies whose shares can be purchased via its service. By promoting investor interest in those shares, it's possible Loyal3 is helping to boost the stock price and market cap of these companies as a result -- which would explain why companies might pay for this service.

Read the fine print

More significant restrictions include:
  • No single customer can buy more than $2,500 of any single stock in any single month
  • Customers can't pick the time when they buy or sell shares. Loyal3 collates all buy orders, and all sell orders for a given stock, then places a single trade for each at a time of its own choosing. Then it divvies up the results for the customers who placed orders that day. "Batch trading" like this, the company is able to keep its transaction costs low, further facilitating its ability to offer free trades.
The upshot: Loyal3 may not offer the flexibility of other online brokers, but its unique twist on free trading should have real attractions for the new investor. And the price is certainly right.

Motley Fool contributor Rich Smith owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Coca-Cola, Facebook, and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Coca-Cola, Facebook, Microsoft, and Walt Disney.

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Steve

The price is not right - this is modeled more on mutual funds.

November 28 2013 at 10:14 PM Report abuse rate up rate down Reply
p. iRVING vIGDOR

I.m not sure Loyal3's program is for those who want to control their portfolios even if I understand correctly there are no fees on buys and sells

I'm with 2 brokers who do not charge fees for stock transactions and I trade any securuty at will at any time including extended hours.

November 28 2013 at 6:25 PM Report abuse +1 rate up rate down Reply
2 replies to p. iRVING vIGDOR's comment
invest.az

What brokers are those?

April 16 2014 at 11:59 PM Report abuse rate up rate down Reply
invest.az

What brokers are those?

April 17 2014 at 12:00 AM Report abuse rate up rate down Reply
pdbliz

NOTHING IS FREE........READ FINE PRINT..........COST MADE UP WHEN YOU SELL.!!!!

November 28 2013 at 7:52 AM Report abuse -2 rate up rate down Reply
1 reply to pdbliz's comment
betty_brock

Evan likes anything FREE.

November 28 2013 at 9:08 PM Report abuse rate up rate down Reply