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The Cost of Free: Rethinking Risk in Modern Investing

Picture of Jenn Cameron, CFA, CPA

🎓When I graduated from U of Toronto in the mid-90s, boomers had a lock on the job market and it was tough to get a position in one’s field. I was fortunate to get hired at a brokerage. It was an incredible experience, one I’m grateful for.

I was a broker’s assistant and our clientele was primarily retail investors. To do my job, I had to get three licenses from the Canadian Securities Institute – all of which involved study and exams.

That wasn’t the only difference.

If you wanted to make a trade, you picked up the phone and called your broker. The client would usually want to know the bid-ask spread, and if they placed an order, they spent a lot of money to do it. Paying over $100 was not unheard of.

Retail investors depended on their broker for information on companies, along with the news and newsletters, which of course were mailed.

Clearly a lot has changed, and most for the better. The fact that people can get access to the kind of information that INVRS provides for free or for a small fee is incredible. The fact that people can place their own trades without going through a middleman and can avoid high commissions is another good innovation.

But it’s not all sunshine and roses. 🌩️

💸 Risk-Taking in Investing & the Illusion of “Free” Trading

Investing has never been more accessible—or more misunderstood. Commission-free trading platforms have opened access to markets but have also introduced new layers of risk that many investors overlook. Let’s unpack the psychology of risk-taking and the hidden realities behind “free” trades.

🎢 The Psychology of Risk in Investing

Investing is inherently a game of risk and reward. But how we perceive and manage that risk is shaped by emotion, experience, and even platform design.

  • Risk Tolerance vs. Risk Capacity: Tolerance is how much volatility you can stomach; capacity is how much you can afford to lose. Many investors confuse the two—especially when markets are booming.
  • FOMO & Herd Behavior: Social media and meme stocks have amplified fear of missing out. When everyone’s chasing the next big thing, rational decision-making often takes a back seat.
  • Overconfidence Bias: Commission-free platforms make trading feel effortless. But ease of access can lead to overtrading and under-researching, especially among newer investors.

🆓 Commission-Free Trading: What’s the Catch?

Platforms like Robinhood, Wealthsimple, and eToro have revolutionized retail investing by eliminating per-trade fees. But “free” isn’t always what it seems.

✅ Pros

  • Lower Barriers to Entry: No commissions mean small investors can participate without worrying about fees eating into returns.
  • Increased Market Participation: Millennials and Gen Z have flooded into markets, bringing fresh energy and perspectives.

⚠️ Cons

  • Payment for Order Flow (PFOF): Brokerages often sell your trades to market makers, who profit from the bid-ask spread. This can lead to poorer execution prices.
  • Rehypothecation Risks: Some platforms use your securities as collateral for their own financial activities. In times of market stress, this can backfire.
  • Behavioral Traps: The gamification of trading—confetti animations, push notifications—encourages impulsive decisions rather than strategic investing.

🧠 Smart Risk-Taking in the Commission-Free Era

To thrive in this new landscape, investors need to balance accessibility with discipline.

  • Do Your Homework: Commission-free doesn’t mean consequence-free. Research companies, understand sectors, and read earnings reports.
  • Use Limit Orders: Protect yourself from poor execution by setting price boundaries.
  • Diversify: volatility erodes compounded returns. Therefore reducing volatility is like giving your portfolio a significant return bump – as much as 1% or more per year. Put energy into creating a less volatility portfolio, one with assets with uncorrelated returns, and you’ll be rewarded.
  • Know When to Pay: Sometimes, premium accounts offer better tools, research, and execution. Free isn’t always best.

🧭 Final Thoughts

Commission-free trading is a powerful tool—but like any tool, it can be misused. Risk-taking is essential to investing, but it should be informed, intentional, and aligned with your financial goals. The platforms may have changed, but the principles of smart investing remain timeless.
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