Effects of Zero Commissions on Retail Trading

How does elimination of broker commissions on stock trades affect individual investors? In their September 2022 paper entitled “Fee the People: Retail Investor Behavior and Trading Commission Fees”, Omri Even-Tov, Kimberlyn George, Shimon Kogan and Eric So examine how retail investors respond to selective elimination of trading commissions (fees) on the international trading platform eToro. Specifically, they compare individual trading behaviors and performance:

1. Overall before and after fee removal.
2. In countries with fees removed versus countries with fees unchanged.
3. For non-leveraged long trades (fees removed) versus leveraged and short trades (fees unchanged).

Using individual trader transaction data and associated demographics from eToro during fee removals from October 9, 2018 through November 6, 2019, they find that: (more…)