Stock Trading Accounts: Free vs. Paid Platforms

Updated: Feb 18, 2021

This article is being written in response to a few direct messages that we received over this past weekend. It has come to our attention that many would-be investors are unsure as to which trading account to open and which broker to choose. We hope that this article helps answer your questions and provides you with other questions to ask your potential broker.

For the purposes of this article, as we are based in Canada, we will profile two market leaders in the Canadian investment arena. The first will be Wealthsimple, a free trading platform, and the second will be Questrade, a discount trading platform. It is important to note that both Wealthsimple and Questrade offer access to Tax-Free Savings Accounts (TFSAs) as well as Registered Retirement Savings Plan (RRSPs) accounts.

The decision on which account to choose falls solely on the owner of the account. Please remember that any gains recorded in a TFSA are tax-free and therefore do not need to be reported for tax purposes when you sell shares to realize the gain. You can also withdraw from your TFSA free of charge and contribute that same amount in the next tax year without penalty. For an RRSP, gains recorded in this type of an account are tax-sheltered and/or tax-deferred. This means that you will be exempt from taxes in the year that you make the deposit to the account, and the gains or any cash in the account will only be taxed when you withdraw it from the RRSP.

As a result, longer term investments which you expect not to need until retirement should be placed in an RRSP and it may benefit you to only contribute to an RRSP account after you have fully utilized your TFSA contribution room. TFSA trading accounts can be used for the long-term as well but they are more versatile in being completely tax-free while also having the ability to withdraw from the account without any penalties, this makes it a perfect choice for the active trader.

Please see below for the highlights of Wealthsimple's trading accounts and Questrade's trading accounts:

1. Wealthsimple

  • Account Types: TFSA, RRSP, Personal (unregistered and taxable)

  • Minimum Balance to open account: $0

  • Outlets: iOS and Android

  • Investment Fees: Only ETFs (exchange traded funds) and Stocks are offered and both are free to trade

  • Inactivity Fees: None

  • 15 minutes delayed market data

2. Questrade

  • Account Types: TFSA, RRSP, RESP, LIRA, RIF, LIF, Margin, and Personal (unregistered and taxable)

  • Minimum Balance to open account: $1,000

  • Outlets: Website, iOS, and Android

  • Investment Fees: ETFs are $4.95 to $9.95 / trade, Stocks are $4.95 to $9.95 / trade, Bonds/GICs are minimum purchase of $5,000, International Equities are 1% of the trade value / $195 minimum, and Precious Metals are US $19.95 / trade.

  • Inactivity Fees: None.

  • Live market data

Order selling and high-frequency trading disclosure

At this point, you have probably already decided on which stock trading broker you wish to choose and which account you wish to open. However, we would now like to take the time to give you the disclosure on order selling and high-frequency trading (HFT).

It is a common practice for most stock brokerages to sell out their client order books to hedge funds, other private corporations, as well as high-frequency traders. The most aggressive brokerage houses are the free trading platforms because they do not generate any income from client trades. Robinhood, a free trading platform in the United States, was recently brought under investigation by the Securities and Exchange Commission (SEC) for not properly disclosing their practice of selling client order flow, they face more than a $10 million fine if the company agrees to settle. You can read more about that here.

High-frequency traders profit off this information by front running on your orders. If they see you have an order to buy at $4/share, they will beat you to it and bid up the price to $5 or $6 in hopes that you'll buy at the higher price. Then once you buy at the higher price they will dump all the shares that they purchased on the open market and the share price will fall back down to $4 or even lower which will cost you money. This is one way that HFT profits when they buy client order books from brokerage houses, so please be aware and ask lots of questions when you encounter brokers who offer trades for free (Wealthsimple, Robinhood, etc.). Just think about it, how would you feel about buying and selling stocks on a platform that sold every one of your orders and activities to big hedge funds and much faster traders?

Ask questions

We hope that you have gained new knowledge by reading this article and we hope that you make good investing decisions. Remember to ask lots of questions in your search for a complete and honest stock brokerage.

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