When the penny was phased out, it was largely believed to be an insignificant little coin. For one Canadian discount brokerage though, they have cleverly fashioned this humble (and now obsolete) coin into a new offer that has become the Canadian discount brokerage industry’s worst pricing nightmare.
One of Canada’s newest discount brokerages, Virtual Brokers, recently announced that they are lowering their minimum commission on a trade from $0.99 down to $0.01 per trade as part of a new pricing plan, aptly named, “The Penny Plan”. While physical pennies may be a thing of the past, the Virtual Brokers penny per share offering is very real and very compelling for investors looking to save on trading commission fees.
How low can you go?
Paying $0.01 commission per share is not new to Canadian discount brokerages or to Virtual Brokers for that matter. Competitors to Virtual Brokers, such as Questrade, offer $0.01 per share trading and Virtual Brokers has been offering $0.01 per share as part of their “the 99”plan as well as their “per share” plan (learn more about ultra-low commissions plans here). What is new, however, is that the minimum commission per trade has never been this low.
Questrade’s standard commission pricing plan is $0.01/share with a minimum charge of $4.95 and a maximum charge of $9.95 (+ECN fees). Even on Questrade’s best pricing plan (the Advantage), the minimum cost per trade is $0.95. While it is possible that pricing per share could drop to the sub-penny level, in reality this kind of pricing is generally offered for day traders who trade lots of volume (see Jitneytrade or Interactive Brokers for example).
How can Virtual Brokers offer this pricing?
Virtual Brokers is able to take an aggressive pricing approach because of their ability to clear their own trades using their own software. Almost all other discount brokerages rely on paying a certain fee per trading ticket for the software that coordinates the actual order during a trade. Rather than outsource that function, Virtual Brokers developed and deployed their own version in house and as a result, they’re able to pass through savings on a per trade basis that few other brokerages are able to match, let alone beat.
I am not happy with VB’s service. The have low fees but you get what you pay for. If you want monkeys processing your trades, then VB is the company for you. I enrolled one of my stocks in VB’s DRP program to have the dividends reinvested back in to the stock that the divi originated. To make the request, you can’t just phone up and ask the Cust. Serv. to process this request, nor is there a check box to select this option at the time of purchase. In order to register your stocks in their DRP program, you have to send them an email through their Portal on their website. Once the email is sent, you get nothing confirming whether your request is being processed or whether it’s even been received. You just wait and hope that the next time dividends are paid out, they get reinvested.
In my case, the dividends were not reinvested and I had to call VB to find out why. It’s been a month and a half since the dividends were paid out, VBs admit that they screwed up and that they will fix the problem, but I have yet to see the transaction to fix my problem. They lie to me on the phone, telling me that the transaction will be done today but when I check in the morning to see if they processed the transaction, nothing. I have to phone back and ask again. This has been going on for a month and a half. MONKEYS.
Terrible service. This is a simple request. It should be dealt with in an efficient and timely manner.
Thanks for your comment. Sounds like an unfortunate experience to go through – hopefully it gets resolved quickly and doesn’t happen again. Looking across the comments on other brokerages (big and small) there are also examples of frustrating situations that individual investors find themselves in, including getting dividend payments handled correctly. The common thread amongst them seems to be a bit of persistence to ensure things get addressed. Best of luck getting things back on track!