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! 🙂
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.
Some other posts I’ve written about Questrade: