E-tradre Schwab, TD Ameritrade, and now even Interactive Brokers offer free trading on US stocks and ETFs on their platforms. Some even offer free trading on Canadian market.
While trades are free, the brokers still earn money on you. Most of them borrow your shares to short sellers which pay a loan for them to cover shorting activity.(shorting involves selling a stock you don’t own and buying it later). But big dirty secret is in Data. These brokerage houses will sell your orderflow; data containing trading information to high frequency traders (HFTs). HFTs have faster access to stock exchanges and can front run your orders bidding price up before your order arrives.
Michael Lewis has written a book about it. The Flash Boys which is now coming as a film later. This is short intro to the topic.
My trades are very low already with Interactive Brokers($0.3 – $0.5) And I am not willing to sell my data to wolves that chap.
Mr Damodaran has posted another great blog with video description. This time topic is overall market valuation which is not a common topic for him but unsurprisingly he gives very logical and data backed opinion on the topic. He calculates equity risk premium of SP500 to be 5.5 % vs risk free interest rate of 1.67% He’s blog post can be found in this link and video is below:
Stock price blurs the picture with this one. For various reason but mainly related to for losing exclusivity to generic drugs, Abbvie. I however believe that decline in stock price is unjustified at this magnitude. This is the earnings growth picture.
Now let’s overlay stock price over it with FastGraphs.
P/E 8.2, is quite low as EPS growth estimates still are positive. Lowe but positive. The orange live marks P/E 15 which is considered fair value for most stocks.