Last week, (ironically on April 1) Questrade discount brokerage announced a change to their trading price structure. The new trading costs are 1 cent per share with a $4.95 minimum and $9.95 maximum.
I don’t understand
Ok, here are some sample trading costs:
- If you trade 70 shares then you pay the minimum $4.95
- If you trade 700 shares they you pay $7.00
- If you do a trade for 7000 shares (yah right!) then you pay the $9.95 maximum.
How is this different than the old price structure?
Well the old structure was more complicated in that you could choose between two different plans.
The $4.95 plan:
- 1 cent per share with a $4.95 minimum and no maximum cost.
The $9.95 plan:
- 1 cent per share with a $9.95 minimum and $9.95 maximum.
The $4.95 plan was better if your average trade was 1000 shares or less and the $9.95 plan was better if you average more than 1000 shares per trade.
Why did Questrade make this change?
If you have read this far, you are probably saying “Mike, I didn’t know what their old pricing was, I really don’t care what the new pricing is, so when is this post going to get interesting?”. Answer = right now! (relatively speaking of course).
My theory on why Questrade changed their pricing structure is that it will save them money – pure and simple.
How does it save them $$?
- The old structure was somewhat confusing, which probably resulted in a lot of calls to their customer service which cost money.
- They would have to have systems functionality to handle the two different structures which also costs money.
I suspect that the only investors who would choose the old higher priced option (you need to do 1000+ share trades to make it worthwhile) would be high rollers who do big dollar trades or penny stock investors (since you don’t need a lot of money to buy 1000 shares of a penny stock). The high rollers are probably doing their investing with the big banks since they would get limo rides to their broker’s parties. The penny stock investors are not all that numerous. The fact is that Questrade probably did not have very many clients choosing the $9.95 option so eliminating the option probably does not lower their revenue significantly.
The only investors who will really benefit is some way will be ones who move RRSPs to Questrade and make large initial purchase trades, but then much smaller subsequent trades. When I moved my RRSP, I used the $4.95 plan and paid over $10 per trade on a couple of transactions, so if this policy had been in place at that time, I might have saved about $4.00 in trading costs. I knew I should have waited! š
Summary
This pricing change is fairly insignificant because they already have the cheapest pricing by far in the Canadian discount brokerage industry, and it doesn’t change the trading costs significantly for the average investor. I think the biggest benefit to this move is less complexity for the investor which is always a good thing.
Click here to open an account with Questrade
Some other posts I’ve written about Questrade:
11 replies on “Questrade Announces Slightly Lower Trading Commissions”
Thanks for the mention Mike. Like you mentioned, it does help the few that trade penny stocks as they don’t have to switch between the $4.95 and $9.95 plans.
I love the price of Questrade (I’m paying $20 / trade at E*Trade), but the reliability issues people have posted about scare me off a bit… It would have been nice if they could have fixed those instead of tweaking the price.
Mr. Cheap,
Maybe they are changing the price to save money and invest it in those “issues” *Sarcastic laugh*
FP, I think you got it right. It’s just simpler for them. But that’s a lot of publicity for not much.
Cheap – if you are not an active trader then it’s not going to make a huge difference.
Regarding reliability – I don’t want to sound like a shill for Questrade, but the reality is that people who do online opinions tend to either really like a product or really hate it. It’s very difficult to get a true sense of what a company’s product/service is like from online anecdotal evidence. I’m actually planning a post about this.
Mike
Mike: Sounds like a great post, I’ll look forward to it. You’re totally right that its not a random sample of people who post about a product / company.
I came across an article which was the 10 worst banks. The idea was they did a google search on the banks name and complaint or something. So obviously bigger banks with more customers are going to have a higher (absolute) number of unhappy customers. The meaningful way to do it would be to look at the relative number of happy / unhappy customers.
Cheap: Another problem is Questrade gets blogged about more than other discount brokerages because of their referral program so there is more opportunity for unhappy customers to voice their complaints.
From the blog community, I know that myself, Telly and Frugal Trader are all satisfied Questrade customers. Canadian Capitalist is not a satisfied customer.
Mike: For some reason, I seem to have hit a number of mines at Questrade but others haven’t. Also, my decision to leave them should be seen in the context that I pay $9.99 at TD Waterhouse. A saving of $5 per trade (let’s say I do 10 trades a year) wasn’t worth the hassle for me.
If I was satisfied with Questrade, I would offer their referral program as well. But, I wasn’t and it didn’t seem right to me to offer referrals when I personally didn’t stay with them. Still, for someone starting out and doesn’t qualify for the $10 trades at the big banks, I’d certainly say Questrade is worth a look as it is possible to build a very low-cost portfolio of ETFs.
CC – I tend to agree with you. If you are getting $10/trade at your current broker and only trade infrequently then it’s probably not worth the move.
moved out of QuestTrade here as well with $9.99 commission from TD Waterhouse
Not worth it to keep at QT, plus our margins got called without any time to transfer cash in
, and much easier to transfer within TD accounts
Thanks for considering me a part of the blog community. š
Telly – it’s like you are one of the family. š