Zecco New Free Online Stock Trading Policy

By Pinyo, on February 2, 2009

I received an email from Zecco over the weekend stating that they are changing their free online stock trading policy effective March 1, 2009. In case you don’t know who Zecco is, it’s an online discount broker that’s famous for offering its customers cheap online stock trading (at $4.50 per trade), and free trades if you’re eligible.

Currently, you are eligible for 10 free stock trades per month as long as you maintain a $2,500 minimum account balance.  Under the new rule, you must maintain a $25,000 minimum balance in order to be eligible for the 10 free stock trades.  If you have less than $25,000, but you are an active trader who trades more than 25 times a month, you’ll also be eligible for 10 free stock trades.  Please note that there is a maximum of 10 free stock trades per month and you cannot earn more than 10, or roll over unused trades to the next month.

Otherwise, the fee structure remained unchanged. Equity trades still only cost $4.50 each, which is still one of the lowest commission you can find for online trading (TradeKing is a close second at $4.95 per trade).  Options trades cost $4.50 per trade plus 50 cents per contract, and mutual fund trades cost $10 each. There are no account minimum balance fee, or inactivity fee.

Why Did Zecco Increase The Minimum Balance Requirement

Zecco indicated that after 130,000 accounts and over 2.5 million free trades, Zecco can no longer maintain their current pricing structure due to the economic downturn and poor stock market condition.  However, the true reason behinds this change is probably the historically low interest rate.  Like other banks and brokers, Zecco makes some of its money through interest rate arbitrage — specifically, earning more on the money sitting dormant in its client accounts than it pays to the customers.

What Does This Mean To You

If you are an active trader with less than $25,000 in your account, or a typical investor who took advantage of the free stock trading, you’ll miss the free stock trades.  However, if you have more than $25,000 or if you are a hyper-active trader who trades more than 25 times a month, it won’t affect you at all.  In any case, the $4.50 per trade commision is fortunately not that expensive; however, it will be noticeable.

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Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

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