Is there anything better in life than getting something for free? Definitely not when it comes to commission-free options trading!
Last week, the major online brokers – Charles Schwab, Ameritrade, E-trade and Interactive Brokers – announced they are offering commission-free trading on stocks, options, futures and bonds. This is a game changer for the industry.
How commission-free options trading will change the industry
When these discount brokers pioneered discounted trading 20 yeas ago, their stock prices ripped higher. Retail traders and investors of all backgrounds embraced their no-frills product. At $9.99 per trade or lower, customers traded more and raised more assets.
Over the years, discount brokers have become formidable competition for big banks like Goldman Sachs, Merrill Lynch, (the late) Bear Stearns and Morgan Stanley. This new, zero-commissions model is a bold one.
But it’s not just traders and investors who will benefit. The Chicago Board of Options Exchange (CBOE) will also reap some benefits.
The CBOE has been around for years, and during that time it has created some innovative trading products. The most popular is the weekly option, which provides us options traders with another tool to grow our portfolio. The “weeklies” have become wildly popular among option traders and a great source of revenue for CBOE.
Naturally, paying even a very low commission cuts into profits. Without that commission, I predict that we will see an explosion in options trading. It is likely even more traders will try their hand at options, and more options will be on offer. As a result, we could see a nice increase in options trading volume, which has been lacking in recent years, and an increase in market makers, which has declined sharply.
And this is why commission-free options trading is a game changer. The CBOE and retail traders will greatly benefit from more volume, more options, and more market makers.