Understanding Trading Without Commissions: What Regulation Is in Place When Investing Online?
Trading in stocks and international currencies can be a time consuming and stressful process, especially when it comes to trading on international markets.
But with the shift from commission basis to zero commission on trades both sold and bought, the investment process has become significantly less expensive. To help you fully understanding trading on a commission-free basis, we have compiled a list of what has changed throughout the years to get you to this point.
Trading Before The Internet
When making trades on the stock exchange, many of the purchases being made where on the basis that the broker who took the sale would gain anywhere between $4.95 to $6.95 every time a position in stock was either purchased or sold. The commission basis for many of these brokers made up about 25% of their revenue and was widely considered the only way to trade. This would equate to a vast amount of revenue over the years and saw brokers making money off of investments in both the short term and long term.
Regulation Of Investments Made Online
This has brought about the involvement of several regulatory agencies when trading online. There are several around the world such as National Association of Securities Dealers in the United States with the New York Stock Exchange as well as the Financial Conduct Authority in the UK, several regulatory agencies are overseeing the investment processes to ensure that the market is kept fair.
This is similar to the regulation for loans and business trading and ensures that it is safe and regulated. Though it is decentralised and is not controlled by a centralised bank, the regulatory agency is in place to ensure that each broker is providing a fair and balanced service for its customers.
The Introduction Of Mobile Trading & Regulation for CryptoAssets
With this profit being made, however, came the introduction to mobile trading. As developers began using both the internet and the convenience of mobile phones to develop mobile trading apps, there was a gap in the market for something better. With apps such as Robinhood being widely considered as one of the first to bring forth commission-free trading, this paved the way for a new way of trading that is in high demand today.
Mobile trading and its ease of use bought commission free trading to a new audience of young investors looking to try their hand on the stock market. With all revenue going straight back into their pockets, this has proved highly profitable for so many and has seen several other trading types and different strategies as a result.
This was a form of investment that had not been regulated beforehand and therefore needed to inform some form of regulation to ensure that the market remained fair. Whilst it is working on a commission-free basis, the FCA and its cryptoassets policy is on hand to ensure the competitive nature of the market is maintained. One of the proposed changes to this was the regulation and proposed banning of the sale of sale of crypto-derivatives to retail customers due to the versatility of the market at this time.
Zero Commission Is The New Normal
As the traditional trading floor switched more to online trades, the zero-commission basis became the new normal. With a majority of mobile trading platforms providing this experience as standard, the number of people making these trades increased dramatically. With 33% of people in the UK owning shares and a total of 73% of men likely to invest compared to the 61% for women, there is a huge gap in the market for zero commission investments to reach a much wider audience.
In 2020, the FCA witnessed a surge in the market for those that were investing in cryptoassets.
What Does This Regulation Mean For The Investor?
But with this you may be thinking, what does this mean for me as an investor? Well, it means that when you buy and sell a stock, there is no commission made on your transactions. In addition to this, the regulation means that the market is kept fair to maintain the competitive nature of the market for investors as well as brokers. This means that all the money you spend or make will be completely yours. The changes to regulation and commission basis for brokers has become the new way to trade with individuals more likely to trade using this style of account. In addition, a majority of these applications also allow for demo accounts to be set up. This is hugely significant for the future of trading as it has enabled individuals to try their hand at trading on these markets without risk.
With this in mind, several benefits have come from creating a trading opportunity on a commission-free basis as it has opened up the stock market to a new wave of tech-savvy investors.