Feb 27, 2020 - Economy & Business

Investors splurge at the free online stock trading buffet

Illustration: Sarah Grillo/Axios

When you give something away, people are likely to consume far too much of it. That's true of food, it's true of drink, and it's true of options trades.

Why it matters: The best thing that an investor can do is nothing. People who actively trade the market are effectively trying to time it — to buy low and sell high. Voluminous literature has shown that it just doesn't work, and that doing nothing is superior to doing something a significant majority of the time.

What's happening: Most online brokerages now charge $0 for stock trades. Even Vanguard charges $0 to trade in and out of stocks, ETFs, and, yes, options. In turn, hundreds of thousands of investors flocking to places like r/wallstreetbets are sending trading volumes through the roof.

Be smart: No good can come of this. The one silver lining to high stock-trading commissions was that they discouraged trading. And the one advantage that retail investors have over the pros is that they have the ability to buy and hold for the long term, without trying to outperform on a quarterly basis.

  • If the market turmoil is tempting you to buy or sell, you may want to think again.

Go deeper

Freakout week for investors

Illustration: Sarah Grillo/Axios

As the financial markets swing wildly, investors are calling their financial advisers in droves, trying to figure out if they should buy or sell.

Why it matters: Fear of the coronavirus — and its impact on the economy — is prompting people to want to "time the market," which brokers say is a bad idea.

Trading halted as U.S. stocks plummet

Traders work the floor of the New York Stock Exchange. Photo: David Dee Delgado/Getty Images

The stock market fell as much as 7% on Monday morning — a decline so steep that trading was halted for 15 minutes.

Why it matters: The massive sell-off points to Wall Street's anxiety about the global economy. The steep declines come as Saudi Arabia launched an oil price war against Russia over the weekend, while the coronavirus outbreak worsened.

Lawmakers come under scrutiny for stock sales

Sens. Diane Feinstein, Ron Johnson and Kelly Loeffler. Photos: Getty Images

Several U.S. senators have come under fire for making large stock trades while President Trump and other federal officials publicly downplayed the novel coronavirus threat, but after the lawmakers received a private briefing on the potential seriousness of COVID-19.

The state of play: The trades have sparked insider trading accusations, but it's impossible to know for sure without an investigation by the Justice Department or the Securities and Exchange Commission.