The Cost of Free
“The greatest trick the Devil ever pulled was convincing the world he didn’t exist.” — Verbal Kint[1]
Or maybe it was the Devil tricking everyone around “free” shipping and no trading costs?
One small part of Amazon’s success is figuring out that Americans hate paying for shipping. By “tricking” us into paying from Prime and eliminating shipping costs (aka paying for it up front) we cleared a mental hurdle. The real cost of that — it’s so easy to buy things. Why would I leave my house and shop local when I can just press a button and wait two days?
Something similar happened with trading costs going to zero. In the 80’s, it would cost $200 for an individual to place trades. Jumping ahead to Robinhood showing up with zero-trading costs.[2] In 2019, to compete with Robinhood the other major online brokerages cut their trading costs to zero. With the mental hurdle of “shipping” (aka trading) costs gone what happened? In 2020, record trading volume occurred. That record will most likely be blown out of the water this year.
Nothing is free and there are trade offs or opportunity costs. In this case, the new cost of trading is going to be your behavior. It’s now easier to speculate when there is no immediate cost. If my portfolio dips and the monkey brain in all of us sees red, then, welp, just hit that sell button. Is that a good?
*takes a big sigh*
Well that’s for you to decide, but don’t act like there isn’t a price somewhere!
Source: https://www.wsj.com/articles/the-race-to-zero-commissions-11570267802
