The latest offer put forth from Questrade is a sign that Canadian discount brokerages are gearing up to compete even more creatively for new clients. In this post we take a detailed look at Questrade’s commission-free-trade-per-month offer to see what consumers are being offered and what potential strategies might be at play from Questrade’s end.

What is the offer?

Questrade is offering new or existing clients one commission-free trade per month for either 12 or 24 months or for as many months as a client makes consecutive deposits of $1,000 or more (up to a maximum of 24 months). This deal is currently running until August 30, 2014.

Cost and Conditions

There are 3 ways to qualify for this deal:

1. Deposit $20,000
2. Deposit $12,000
3. Deposit at least $1,000/month for consecutive months

The offer is open to new and existing clients of Questrade however existing clients cannot use an existing Questrade account to fund a new account to qualify for the promotion.

Individuals can only use the commission-free trade for the month it is assigned to and there are no roll-overs or carry forwards. If a commission credit is not used in the month it is assigned to, clients forfeit that credit for that month. In other words, it is a ‘use-it-or-lose-it’ offer type.

Another important detail to keep in mind is that trading commissions will be charged at the time of a trade and then rebated back to the client within the first week of the month following the month in which the trade was placed.

What is the Value of the Offer?

The value of a standard commission at Questrade can range from $4.95 to $9.95 (excluding ECN or market fees) and the maximum value of a trade commission set forth in the deal’s terms and conditions is $9.95 per trade.

Since what clients get is a discount on a trade (as opposed to cash up front for example), one important assumption is that a client would, in fact, place at least one trade per month for consecutive months.

Let’s consider the available scenarios attached to this offer to see what clients receive for making a deposit:

Scenario 1: Deposit $20,000

Under this scenario an individual has to commit $20,000 of capital into their trading account. By doing so, they receive 24 commission trades (one free trade per month for two years). Hence, the value of the offer is capped at 24*$9.95 = $238.80 which represents 1.19% of the deposited amount over two years.

Scenario 2: Deposit $12,000

With this scenario an individual deposits $12,000 and receives 12 commission-free trades at the rate of one per month. The value of this option is 12*$9.95 = $119.40 which represents 1.00% of the deposit amount over one year.

Scenario 3: Deposit $1,000 a month consecutively

The last option available for this offer is for a client to receive one commission free trade per month for each month that a deposit of $1,000 or more is made. The value of this option is also about 1% over the possible time frame allowed with this option (which is 24 months). Importantly, if a client fails to make a deposit of at least $1,000 for consecutive months they no longer become eligible for any further commission-free trades as a part of this offer.

The Analysis

This particular deal from Questrade is distinct from its other offers and is also very different from the current offers from other Canadian online brokerages.

For consumers, Questrade’s latest deal provides a way to extend the shelf life of many other ‘free commission’ offers currently advertised by spacing out the free offers over a greater amount of time (in most cases).

Of the three scenarios, the first offers individuals the best ROI in terms of value for amount deposited however it does require parking at least $20,000 up front and executing a trade once a month for 24 months.

Alternatively, the third scenario (make consecutive net monthly deposits of $1,000 or more) is equivalent in terms of ROI to the second scenario, however the amount of capital required is much lower ($1,000 vs $12,000).

Interestingly, the third scenario in this deal competes with all but two of the other current offers from Questrade. Most notably, for deposits of just $1,000 new clients have 10 trades to use with no expiry date or can have access to 10 trades within 60 days or unlimited trades within 30 days. Thus, for deposits of $10,000 or less, Questrade has other offers that have a better ROI than this new offer (clients would have to deposit at least $10,000 to qualify for 10 commission-free trades). For total deposits between $11,000 and $19,000, however, there may be some appeal to this commission-free trade per month offer.

Depending on how much capital an individual has or wants to set aside in a trading account, receiving a commission-free trade per month is a unique way to receive a reward for opening an account. It is not as flexible as receiving cash up front or after 6 months (the typical window for payout waiting periods) but it does still provide for commission-free trading in steady increments.

With so many other offers for investors to choose from (see table below), hanging on to clients is something all online brokerages struggle with. From Questrade’s perspective, this latest offer is a creative way to appeal to active traders or moderately active traders. Most interesting of all, this offer also enables Questrade to create an incentive for clients to maintain a relationship with them for 1 or 2 years.

The Bottom Line

For investors, whether or not this is the ‘right deal’ largely depends on their trading habits (i.e. will they use the free trade per month), whether they really want to go with Questrade and how long they would have to park their money in the brokerage account. As mentioned above, the value of this offer is more compelling for certain deposit sizes (i.e. for deposits greater than $11,000) because other existing offers from Questrade offer comparable value for lower deposit amounts.

This latest deal from Questrade shows that Canadian online brokerages are willing to get creative when it comes to promoting their online trading accounts and that consumers may need to do a little extra number crunching to see if a deal is a good fit. That said, other brokerages may soon feel inspired to loosen the purse strings or start getting more creative to compete. And, while they do that, investors can sit back and watch the brokerages who want their business work a little harder or pay a little more to get it.