Skip to comments.New App Offers Stock Trades for $0 Commission; End of $7 to $10 Trades at E*trade and Schwab?
Posted on 05/18/2014 10:54:44 AM PDT by Kaslin
Many companies claim to be discount brokers. But there is no definition of the term. Charles Schwab was a pioneer in discount trading, but other online trading firms offer lower prices.
The ultimate in low-commission trading is $0 per trade, and that model is about to hit the street. "Robinhood", a new app in the works has a huge waiting list precisely because it offers trade commissions for noting.
CNN Money reports Trading App has 340,000 Person Wait List.
The legendary archer of Sherwood Forest is taking aim at the stock market. Robinhood is a new trading app that promises users free trades and no account minimums.
That's a big departure from the $7 to $10 fees per trade that other brokers which cater to the masses like E*Trade and Charles Schwab charge. These firms offer discounts from time to time, but only if a customer has a large account or uses other services.
Plenty of people are excited about $0 commission trades on Robinhood. The app is still in beta test phase, but nearly 340,000 people have signed up on the company's website to gain early access.
The roll out process is reminiscent of the early days of Gmail, Gilt Groupe and the Mailbox app: There's an aura of exclusivity, and if you refer more friends, you move up the wait list.
Perhaps it's not a surprise that Robinhood is taking this approach since Google Ventures is one of the company's key backers, and a former Mailbox app employee is now part of Robinhood's 15-person team in Redwood City, California.
In December, the company said it was targeting "early 2014" for launch. Now they plan to open the app up to more people on the wait list in the coming weeks and have it available in app stores later in the summer.
"Rest assured when you use it, it will be unbelievably cool," Baiju Bhatt, one of the co-founders, told CNNMoney.
Robinhood was founded by former Stanford roommates Vladimir Tenev and Bhatt who worked on Wall Street after getting master's degrees in math.
Tenev and Bhatt's job on Wall Street was to build high-frequency trading (HFT) platforms for financial institutions.
"At the time, HFTs were commonly paying a tenth of a penny per trade, which enabled the business model to operate with razor thin margins," Bhatt says. "We had a head scratcher moment where we asked ourselves, 'Why do we pay $10 when we trade our personal accounts?'"
Okay, a “seat” in the stock exchange, which allows you to trade, costs x millions. The trading fee pays for that seat plus some profit for the seat holder. How, exactly, will they pay for the seat? (Am I missing something? Perhaps you have to wade through advertisements?)
There’s more to having a stock account than the commission. Recall various Ameritrade problems over the last few years for example. If you wanted to buy or sell and couldn’t, you might have lost or missed hundreds or even thousands of dollars.
What is the catch? Who makes the money on $0 commissions?
“Our one design principle was building an interface so it’s useful in 15 to 30 second bursts like when you’re standing in line waiting to order coffee,” Bhatt says.”
Ah, catering to the serious investors I see.
If only there were some article somewhere that had some of these details in it.
How does Google or Facebook make money? I would figure the same strategy.
I’m happy with what I can do at ShareBuilder. I’m also wary of free and 0 cost things.
Well, if you’re referring to what was mentioned on page two of the article, even the author has doubts.
If you mean this...”Purposely trading faster or slower and stripping out the difference is not legal. With interest rates near zero, making a lot of money on cash deposits will not be easy unless the company takes some risks. E*trade nearly blew up making questionable investments.”
I don’t think it will work. They’ll have to front the money for a seat. Then they’ll have to hold a buy or sell to arbitrage it. First, you only make a small amount or you risk a huge amount. Also, I think it’s called fraud when your client says sell at $2 and you hold it until it’s $2.1 and take the .1 profit or you hold it until it’s .9 and he gets the loss.
Also, people trading like this will be trading trifling amounts.
1) Like all brokers, they will know of the trend of every stock before you, allowing them to profit in multiple ways. Also, there will be a marginal difference in most every trade they will pocket.
2) They will tie this to your permanent personally generated profile, including your Gmail, to be able to aggregate even the amounts of all traded stocks—both to advertise to you and to proactively manipulate you. This aggregated data can then be sold or given to liberals to better attack you. 0bama gets this on us, now, as needed from his Google contacts.
Heard of Sharebuilder. What is the website for it?
My reaction is BFD. When you buy/sell stock, the transaction money is made on the bid-ask spread. At, say, 2 cents a share, a 1000 share order will be $20, which is more than the commission they say they charge. Why do you think your broker is often paid for order flow?
I’m not saying this is a bad situation-it’s so much better than it was 30 or so years ago when all quotes were fractional rather than decimal, so the bid-ask spread was much larger.
My guess is the free version will have limitations and there will be a paid version that will provide additional services plus add on products.
There are no more “seats” on the NY Stock Exchange. All of the seat holders exchanged their “seats” for stock several years ago.
When you buy/sell stock, the transaction money is made on the bid-ask spread.
The fact of zero commission being offered will wake people up to this little scam. (Which is fine, as long at it is disclosed).
“There are no more seats on the NY Stock Exchange. All of the seat holders exchanged their seats for stock several years ago.”
Cool! Didn’t know that. So, how is access to the market controlled now? They just let anybody plug in and trade?
nothing costs nothing
the Google investors are just finding another way to collect data on you and sell you for a profit to data aggregators and advertizers and other companies
My bet is that this has something to do with high-frequency trading.
A lot of stocks have a substantially higher bid ask spread so this could get real spendy quickly.
They pay for it by doing illegal microtrading, whereby they know you want a stock at a slightly higher price so they trade buy and sell it in a millisecond.
1. Stock is $1.00
2. You put in a trade for $1.02
3. They intercept your trade (illegally wiretapping your trade) and buy the stock for $1.01
4. They then sell you that stock to you at your requested $1.02
5. They made $0.01 cents on the transaction
“They pay for it by doing illegal microtrading, whereby they know you want a stock at a slightly higher price so they trade buy and sell it in a millisecond.”
Oh, my goodness. This is why I’m perfectly happy to pay market for a service I want. I’ve been called any number of times and told, “You’ve just won (100 gallons of gas, free dance lessons, a new car.)” and I always say, “I’m sorry I don’t want anything that’s free. I’m happy to pay. Goodbye.”
Yep, they want to front run your trade. They’ve been doing it anyway for a while, at least now you won’t be paying the $7.99 for the pleasure.
What I want is the ability to trade more often then buy then wait 3 days to settle then trade then wait 3 days to settle. I do not have the large amount of cash to keep in an account for day trading.
“has to do with high frequency trading” You hit the nail on the head... you will be buying in 15 - 30 second grouping from a company that is trading ahead of your aggregated purchases.
So they’re skimming. Figures.
I am satisfied with the $7 to $10 commissions at Etrade and Ameritrade, for that price I get a nice web page to follow my stocks and the trades are reasonably fast. I do most of my research on my own. I am a buy and hold dividend stock buyer and don’t make over 20 trades a year. The bulk of my retirement money is not in my portfolio as that is in IRAs and deferred income accounts which have a menu of mutual funds to chose from.
The trade will probably wind up costing you a lot more than $7-$10 if you’re purchasing a large number of stocks, which is the plan.
For small timer me, it works well.
There is no free lunch.
I don’t understand what you’re thinking. The commission isn’t the major expense; why should eliminating it widen the bid-ask spread or total trading cost to any significant degree?
You said “When you buy/sell stock, the transaction money is made on the bid-ask spread. At, say, 2 cents a share, a 1000 share order will be $20, which is more than the commission they say they charge.”
I said a lot of stocks trade with a higher spread than 2 cents right now. I’ve watched some that a 50 cent spread is not uncommon.
If you cannot identify the mark/sucker, it’s because you are the mark/sucker
Why do people in receipt of free stuff imagine good things will happen???
I didn’t say there weren’t higher spreads, although 50 cents is excessive unless it’s a high-priced stock. What I was emphasizing is that even with small spreads, the commission isn’t the major part of the trading expense.
Obviously, that’s even more true with a higher spread.
There are no more seats on the NY Stock Exchange. All of the seat holders exchanged their seats for stock several years ago.
Cool! Didnt know that. So, how is access to the market controlled now? They just let anybody plug in and trade?
Most stock trades by brokers are now placed through the one of several electronic exchanges that offers the best price at the time.