Will you soon have to pay more for stock trading?

Last Updated: 1. Februar 2024By

„Neo-brokers advertise with the simplification of securities trading. One swipe or click – and the trade is done, allegedly without having to pay a cent. But: While the advertising speaks of free buying and selling of stocks, in reality there are no free transactions.

The neo-brokers are paid by the involved service providers in the form of commissions. The amount of these commissions does not have to be disclosed by the neo-brokers, just like any other broker. In principle, it is possible that neo-brokers choose trading platforms for their clients based on the best compensations rather than the best conditions. However, brokers are already obligated to offer their clients the best execution of trades.

Consumer advocates have frequently warned in the past that trading apps can tempt people into gambling. There are also risks that users tend to ignore, as trading appears to cost them nothing.

New EU regulation for neo-brokers „Now from 0 euros per order“, „Invest without commissions“ or „Trade without order fees“ – such advertising promises will disappear from the scene by 2026, as the EU plans to ban almost free stock purchases via smartphones.

The business model of neo-brokers, which include companies like Trade Republic and Scalable Capital, is called „Payment for Order Flow“. Tagesschau.de explains the principle behind it: The neo-brokers send their clients‘ orders to certain trading platforms and receive a rebate from the stock exchanges in return. Customers then only pay a very low or no fee for trading stocks or funds. According to the European Union, this model will come to an end in 2026.

Uncertain future regarding costs Neo-brokers are understandably not happy about this decision. „The ban on Payment for Order Flow is a huge success for the monopoly exchanges. They want to keep consumer-friendly, low-cost and simple competition at bay,“ Christian Hecker from Trade Republic is quoted on tagesschau.de. Erik Podzuweit from Scalable Capital speaks of an „unpleasant surprise“ and a „lobbying success for the major European exchanges.“

The German Federal Ministry of Finance, led by the FDP, also expressed criticism of the EU decision. They were against it in negotiations at the EU level, but were isolated in their position, it is said.

The major online brokers promise to continue keeping prices low even after 2026, but will they succeed or will trading, like so many other things, become more expensive? The online brokers are currently benefiting from high interest rates, but these could soon be lowered again. What will happen then?

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