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The Hidden Costs Of Commission-Free Trading - YouTube
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have you ever heard the expression
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there's no such thing as a free lunch
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well in finance there really is no such
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thing as a free lunch
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and today we're going to talk about how
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firms who offer so-called
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zero commission or free trading brokers
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make money
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[Music]
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hi my name is chris kovalchuk and i'm an
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associate portfolio manager
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at claret asset management popular free
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to trade firms
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utilize something that's called pf no
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that's not what you're going to tell
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your broker when you're done watching
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this video
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keep off stands for payment for order
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flow
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if that sounds a little strange let me
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explain how it works
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let's say you want to buy a share of
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apple you want to go to your free to
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trade
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stock broker and hit the buy button and
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the stock
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magically appears in your account you're
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happy and you move on with your day
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what you don't see and you don't know is
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what happened between the moment you hit
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buy and when the share showed up in your
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account
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in a few milliseconds your broker
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directed the trade
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for a fee to someone say a market maker
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who paid for and might make a profit
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from your order flow
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companies make a huge amount of money
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from this practice
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let's look at one u.s broker that
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engages in this practice and is a
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household name
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the american broker earned more than 500
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million
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us dollars by selling your orders in the
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last three months of 2020 alone
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another way free to trade platforms make
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money off your clients
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is by taking a commission on currency
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conversions
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take wealth simple this popular free to
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trade canadian website
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charges one and a half percent
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commissions on these transactions
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you might think one and a half percent
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is not that bad
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but remember you pay this fee each time
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you buy
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and sell foreign currency so although
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you aren't technically paying fees on
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the trade
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it still means three percent of the
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amount of your conversion
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goes straight into wealth simple's
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pocket and that's
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expensive and that's before even
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considering that there may be
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already a spread embedded in the rate
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they're giving you
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once again this becomes an expensive
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lunch
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knowing the fees you pay is important
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when purchasing
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any service this is why crm2
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is revolutionary in the field of finance
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crm 2
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is short for client relationship model 2
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and refers to the rules
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for canadian investment dealers and
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advisors
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that require greater transparency about
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cost and performance of client accounts
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claret provides crm2 disclosures to each
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of our clients so that they know how
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much they are
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actually paying claret at claret
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our management fees are charged
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quarterly based on the portfolio value
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at the end of the previous quarter the
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fees are charged directly
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into each client's investment account
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and management fees
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for non-registered accounts are
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tax-deductible
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furthermore claret has negotiated
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competitive commissions
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with the brokers that we trade with
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claire does not make
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any money selling order volumes that's
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just not our business
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we are discretionary portfolio managers
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with a fiduciary responsibility
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not brokers one of the fiduciary's
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primary responsibilities
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is best execution and when we do a
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currency conversion
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for our clients we pay in pips which is
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short for percentage
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in point or one one hundredth of one
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cent
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and we shop rates of several
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institutions and we deal with the
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institutional desk
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that offers the best rate at that time
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we deal wholesale
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not retail and that's why clients will
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call us when they have a large sum of
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money to convert
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whether they want to buy a foreign
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property pay for a vacation
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or use the funds for general corporate
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purposes because
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we deal wholesale we can normally do
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this conversion for a cheaper rate
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than a bank claret does not make any
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money off this
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but it helps our clients avoid paying
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unnecessary fees
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at claret we manage money for our
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clients and our management fees are
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fully disclosed
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wouldn't you like a bit of clarity when
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was the last time
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your investment advisor could clearly
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explain how much you're paying
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give us a call and we'll dig through the
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footnotes to help paint a clearer
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picture for you
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thank you for watching for more
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investing tips
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visit our website at claret.ca and don't
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forget to hit the subscribe button
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[Music]
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you
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