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?'"
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.
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! Didn’t 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.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.