My first thought was "sounds too good to be true, what's the catch?" and sure enough one of the first links is "Learn how we make money." That link goes to the FAQ section where they explain that.
The question is, will API access be billed per transaction, or some flat fee? The former will make it difficult to do much that's very interesting, but you could have a lot of fun experimenting within a flat fee structure.
1) How will they afford SIPC coverage? (That is the insurance for your money in case they fail.)
I would bet that a good portion of their outside investments would go toward this while they are growing. If they can make enough on their API and margin trading that would cover it long term. I would also bet their margin trades will have a bit higher lending costs than a typical trading platform.
This looks really cool. The first question that comes to mind from the .io tld is does it have API access?
There was a company called Zecco (zecco.com) which also did something similar with zero commissions (hence the name). Not sure if they're still active.
Update: looks like they (zecco) were bought by tradeking.
So from the FAQ Page it looks like they will make money from margin accounts (presumably swap/interest) and also by charging for API access.
Only to people poorly informed enough not to know that "some random guy in a legal jurisdiction we don't know anything about has us by the throat, and we're okay with that" should make a service look rather sketchy.
After http://en.wikipedia.org/wiki/Depopulation_of_Chagossians_fro... it looks worse than most naturally suspect unfamiliar country codes. The non-elected government seems to be run by dishonest scumbags who quietly deported all the natives to set up a military base. The people who run Guantánamo are allegedly under US jurisdiction but I wouldn't risk buying a domain from them either, because what would I do when they screw me over?
Zecco started out with free trades. Then it was free trades if you had $10k. Then it was 25 free trades per month if you had $25k. Then they were bought by Tradeking.
I worked on the original Zecco.com (originally called Gekko from Gordon Gekko).
It was developed and designed in Denmark by an agency i co-founded and then incorporated in the US a year later.
They merged with TradeKing a couple of years ago.
The intent with ZEro Cost COmmission was to be free and making money on margin accounts. But as I think these guys will find its going to be tough to build a business on that.
As circumstances will have it I am having lunch with one of the original zecco people today :)
You're the product even if you are paying for it. You don't think for-pay services won't try to make more money or gain more value from the data you're providing them?
For-pay services have an incentive not to do something with my data that upsets me enough to leave. Let's say an advertising company offers eTrade 50-cents for info on every trade I make. That's free money for eTrade right up until I, as the client, decide that's intrusive and take my business elsewhere. Now eTrade is out my $10/trade, let alone the 50-cents.
But you don't have that leverage with a free service. To them, (in the long run) making some money at the cost of pissing off their customers is better than making no money at all.
Retail traders are, generally speaking, uninformed traders (relative to the rest of the market). As a result, retail order flow is extremely lucrative for market makers. There is little risk they'll get run over by a large informed trader if they know they are only trading against retail orders. For that reason market makers are willing to pay retail brokerages for their order flow. That's what happens at many of the retail shops (ameritrade, etrade, etc).
I guess what I'm saying is that if you are a retail trader you are the product regardless of commissions.
https://www.loyal3.com kinda does the same thing and it's live now. It works with the companies to provide fee-free stock for longish term buy-in. Plus, you don't have to be an institution to grab some IPO fluff. Plus, for non-recurring purchases you can fund with a credit card.
(You can't execute a trade at any given time during the day. You put in "Buy $100 worth of AAPL" and they execute it at the end of the day. Same with sell orders.)
Really liking Loyal3. The ability to buy into an IPO at the same price as institutional investors is actually pretty cool. As a data point, IPOs priced in the last couple months closed their first day of trading 34% higher[1] than underwriter pricing.
Seems OK - but is anyone going to trust this? One idea is a low-amount "test" fund to keep around a year or so? Anyone have ideas on how to feel better about actually using this for larger sums of money?
They appear to charge TAF and other regulatory fees (https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...) -- and based on the fee numbers it looks like they don't have significant volume -- but the website shows "FEES $0" in the app screen. The fees may not seem to be a lot, but saying that fees are zero is a factually incorrect statement.
The fact that they don't list exchange fees seems to suggest that they may end up routing orders to a market maker and collect fees from that (the exchange fees are generally 30 cents per 100-share lots). If so, they should note on the website that they are making money by selling flow
According to their site, they claim that you'll "buy and sell at the best possible price"; I'm not sure how they are able to make this claim if they cannot route your orders directly to the exchanges.
On their mockup on their site, the orders screen has an "Estimated Price" which is a strange field as typical order types should be either "Limit" or "Market" and should show the bid/ask spread on the current security; so I'm guessing that the best "possible" price is the "market price" and they are doing a combination of
1) Internal matching; orders aren't being routed to exchanges but if are internally matchable, just reconcile the books internally and they collect the bid/ask spread on both side of the trade.
2) Payment for order flow: they route your orders first to Citadel and Timberhill where marketmakers love to take the other side of retail order flow.
3) Internal marketmaking: they'll take the other side of your trades themselves and try to immediately close their negative positions by routing the order to an exchange for rebates and a better price.
> they claim that you'll "buy and sell at the best possible price"; I'm not sure how they are able to make this claim [...]
My guess: they already advertise that they are constantly getting market prices from multiple sources - so they simply run a Best Price Execution algorithm for every trade and use the current state of their (locally cached) total market state. So a trade may get matched up against multiple bids, where a single bid may not be enough to satisfy the full order amount. So they apply BPE (think of it as a greedy algorithm) and find the next best available price to complete the trade. Iterate until the entire trade is matched and that's it.
Disclosure: I work for a betting exchange. We do BPE.
>Internal matching; orders aren't being routed to exchanges but if are internally matchable, just reconcile the books internally and they collect the bid/ask spread on both side of the trade.
Doesn't that violate national best bid? Also, a lot of retail dumps market orders, so how do you determine the price to match buy-sell pairs at?
Well, you are matching the buy and sell order of your internal orderflow at market prices, e.g.,
Retail trader Bob wants to buy 100 shares of MSFT at the market price
Retail trader Sue wants to sell 100 shares of MSFT at the market price
NBBO of MSFT is at 36.70/36.72
You fill Bob at 36.72; and you fill Sue at 36.70. So Sue's account is credited with 3670 cash while Bob's account is debited by 3672 cash for the privilege of owning 100 shares of MSFT; while you collect the $2 difference and get RegNMS compliance.
I don't think this works for typical retail brokers. There's just not enough volume, except for in a very small handful of the most active stocks. Remember, nowadays people expect execution confirmation in less than 1 second.
Now, on the other hand, if you're Getco, you get to see these orders from every broker in the country. If you can trade against that, you can make money even with a bid/ask spread of $.02.
So if you're Getco, (hypothetically, I have no direct knowledge of them, except that they're big in market making) you can go to the retail broker and offer them price improvement.
E.g. in return for the order flow from that broker, Getco fills them "inside" NBBO. Getco bids 36.7001, Getco asks 36.7199. (I get confirms like that constantly from my retail brokers). Getco also gets rebates from the exchanges for "adding liquidity". I.e. NYSE or NASDAQ pays Getco for certain types of orders. Getco can kick back a portion of those rebates to the brokers.
This type of market making (known as specialists on the NYSE) was wildly profitable up until decimalization about a decade ago. Now there are only a few firms left, because the spreads are tight, so the volume needs to be high in order to make any money.
Plus, one bad day because of a computer error can totally destroy your company. E.g. when Knight Capital Group blew up just one year ago and was subsequently acquired by Getco.
How long must they have let scallion/Shallot. https://github.com/katmagic/Shallot is quoting a 10char prefix on the order of decades for a single machine.
That's funny, I'm actually running scallion in the background right now. I am thinking about spinning up some ec2 instances to just pay $10-$50 to finish sooner. Pretty sure this is what TorBroker did too..
It's an interesting question how much added flexibility decreases the time. If you add a letter to the pattern it increases the complexity by a factor of 36 (26 letters, 10 numbers), but if you add an optional letter it actually halves the complexity, because strings are acceptable either with or without the match. If their pattern was torbroke?ra?ge? then based on the time quoted, if it takes 2.5 years for 9 letters, we'd expect only 114 days for 9 letters plus three optional letters. The fact that they only have one letter missing means they probably didn't have much more than 2 optional characters, since you would expect on average half of them not to appear.
If you transfer Bitcoins to a Tor hidden service you're just asking for them to be stolen.
One cool thing about Bitcoin is you can use "colored coins" [1] to track shares of stock, then you can use Bitcoin's "script"[2]/contracts[3] to do trustless/atomic trades. It requires the company (or some other counterparty) to issue the stock as colored coins though, so for now it's limited mostly to Bitcoin related companies. You can even do trustless cross-chain trades, for example if a you wanted to trade Litecoin for a Bitcoin (or Bitcoin blockchain-based colored coin) [4].
That's my favoring saying, by the way, but is this more expensive to build and maintain than, let's say, Gmail? I doubt that. Also, there are many ways to monetize - I'm sure Google has something better in mind that the simple commission-based approach.
I dont have the finra guidelines in front of me, but the statement that they work with finra and imply that doing so means they have solid security seems like a violation.
The enthusiasm for this suggests that there are many people trading frequently enough and making low enough returns that existing discount brokerage fees are significant. Are they doing HFT from home?
Perhaps more aspirational than reality. How many of us would love to write a computer program using a stock trading API just to see if we can beat the market? But the up front fees make that expensive to even try.
This is a bad business. Competing on cost against large incumbents without a defensible low cost position in a competitive industry without most target users paying high costs currently (interactivebrokers).
I have to agree with you. Additionally, I'm happy to pay my broker 25 basis points for every trade I make. In exchange I get 24h phone support, trade over the phone, analyst research, morning notes, end of year trading tax records, etc. Paying for a service, if it's an excellent service, is not a bad thing. This internet trend of "everything free" wants to shift the attention from the fact the back-office, customer service and other support functions are lacking or inexistent.
The fees, listed on the website, are mostly transparent but complex.
You must pay at least $10 in commissions each month or they charge you the difference. Depending on how much you trade this might be a deal breaker. There is also a minimum initial deposit.
Virtualbrokers is another option with more choice of fee structure. I don't think they have a minimum monthly fee but they charge you for data.
IB is very competitive. IB encourages volume so I believe our FIX gateway has a minimum of $100 in commissions. IB's pricing structure is very transparent in terms of pricing. You can also get rebates passed back to you.
Your fees is commission + the spread. Will be good if the executions are good, but one cent in spread on 1000 shares is $10 anyway.. Also $50 to close the acct.. what other unusual fees in there?
It seems that this project emerged out of the Robinhood iOS application they were previously developing. I spoke to the founder of Robinhood a few months ago, and they looked quite centered around the idea of crowdsourced finance. It's pretty interesting that they've decided to change their product completely, and it seems like a smart decision in the long run.
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[ 5.8 ms ] story [ 240 ms ] threadhttps://www.robinhood.io/faq/
* charge for API access * provide a margin facility (charge interest on a loan provided to facilitate trading).
1) How will they afford SIPC coverage? (That is the insurance for your money in case they fail.)
2) Will they do any securities lending with purchased stock?
3) How much will they charge for selling a stock short?
4) Taxable reporting? Do they handle that or is that up to you, the investor?
I would bet that a good portion of their outside investments would go toward this while they are growing. If they can make enough on their API and margin trading that would cover it long term. I would also bet their margin trades will have a bit higher lending costs than a typical trading platform.
As far as I know, it's a legal requirement for your brokerage to report your income and transactions to you and the IRS on the various 1099 forms.
There was a company called Zecco (zecco.com) which also did something similar with zero commissions (hence the name). Not sure if they're still active.
Update: looks like they (zecco) were bought by tradeking.
So from the FAQ Page it looks like they will make money from margin accounts (presumably swap/interest) and also by charging for API access.
http://www.russellbeattie.com/blog/artisanal-websites-the-ri...
(Beattie credits evocative short name, stable British administration, lots of available short and English word domains.)
Another clever new-ish one is .ac, but it's more expensive than the already expensive .io.
.io domains are very popular in a ton of different areas, though!
It was developed and designed in Denmark by an agency i co-founded and then incorporated in the US a year later.
They merged with TradeKing a couple of years ago.
The intent with ZEro Cost COmmission was to be free and making money on margin accounts. But as I think these guys will find its going to be tough to build a business on that.
As circumstances will have it I am having lunch with one of the original zecco people today :)
No minimum balance, $0 commissions. Trading for the normal person.
The name Robin Hood is perfect.
Commissions, fees, and minimum account sizes can be barriers that prevent participation at all.
I didn't feel any better about that when I saw that Google was one of their major investors.
Still hoping for the best though.
But you don't have that leverage with a free service. To them, (in the long run) making some money at the cost of pissing off their customers is better than making no money at all.
I guess what I'm saying is that if you are a retail trader you are the product regardless of commissions.
(You can't execute a trade at any given time during the day. You put in "Buy $100 worth of AAPL" and they execute it at the end of the day. Same with sell orders.)
1. http://www.renaissancecapital.com/ipohome/pricings/priced.as...
The fact that they don't list exchange fees seems to suggest that they may end up routing orders to a market maker and collect fees from that (the exchange fees are generally 30 cents per 100-share lots). If so, they should note on the website that they are making money by selling flow
According to their site, they claim that you'll "buy and sell at the best possible price"; I'm not sure how they are able to make this claim if they cannot route your orders directly to the exchanges.
On their mockup on their site, the orders screen has an "Estimated Price" which is a strange field as typical order types should be either "Limit" or "Market" and should show the bid/ask spread on the current security; so I'm guessing that the best "possible" price is the "market price" and they are doing a combination of
1) Internal matching; orders aren't being routed to exchanges but if are internally matchable, just reconcile the books internally and they collect the bid/ask spread on both side of the trade.
2) Payment for order flow: they route your orders first to Citadel and Timberhill where marketmakers love to take the other side of retail order flow.
3) Internal marketmaking: they'll take the other side of your trades themselves and try to immediately close their negative positions by routing the order to an exchange for rebates and a better price.
My guess: they already advertise that they are constantly getting market prices from multiple sources - so they simply run a Best Price Execution algorithm for every trade and use the current state of their (locally cached) total market state. So a trade may get matched up against multiple bids, where a single bid may not be enough to satisfy the full order amount. So they apply BPE (think of it as a greedy algorithm) and find the next best available price to complete the trade. Iterate until the entire trade is matched and that's it.
Disclosure: I work for a betting exchange. We do BPE.
Doesn't that violate national best bid? Also, a lot of retail dumps market orders, so how do you determine the price to match buy-sell pairs at?
Retail trader Bob wants to buy 100 shares of MSFT at the market price Retail trader Sue wants to sell 100 shares of MSFT at the market price
NBBO of MSFT is at 36.70/36.72
You fill Bob at 36.72; and you fill Sue at 36.70. So Sue's account is credited with 3670 cash while Bob's account is debited by 3672 cash for the privilege of owning 100 shares of MSFT; while you collect the $2 difference and get RegNMS compliance.
Now, on the other hand, if you're Getco, you get to see these orders from every broker in the country. If you can trade against that, you can make money even with a bid/ask spread of $.02.
So if you're Getco, (hypothetically, I have no direct knowledge of them, except that they're big in market making) you can go to the retail broker and offer them price improvement.
E.g. in return for the order flow from that broker, Getco fills them "inside" NBBO. Getco bids 36.7001, Getco asks 36.7199. (I get confirms like that constantly from my retail brokers). Getco also gets rebates from the exchanges for "adding liquidity". I.e. NYSE or NASDAQ pays Getco for certain types of orders. Getco can kick back a portion of those rebates to the brokers.
This type of market making (known as specialists on the NYSE) was wildly profitable up until decimalization about a decade ago. Now there are only a few firms left, because the spreads are tight, so the volume needs to be high in order to make any money.
Plus, one bad day because of a computer error can totally destroy your company. E.g. when Knight Capital Group blew up just one year ago and was subsequently acquired by Getco.
One cool thing about Bitcoin is you can use "colored coins" [1] to track shares of stock, then you can use Bitcoin's "script"[2]/contracts[3] to do trustless/atomic trades. It requires the company (or some other counterparty) to issue the stock as colored coins though, so for now it's limited mostly to Bitcoin related companies. You can even do trustless cross-chain trades, for example if a you wanted to trade Litecoin for a Bitcoin (or Bitcoin blockchain-based colored coin) [4].
[1] http://coloredcoins.org/
[2] https://en.bitcoin.it/wiki/Script
[3] https://en.bitcoin.it/wiki/Contracts
[4] https://en.bitcoin.it/wiki/Contracts#Example_5:_Trading_acro...
(disclaimer, I work there)
You must pay at least $10 in commissions each month or they charge you the difference. Depending on how much you trade this might be a deal breaker. There is also a minimum initial deposit.
Virtualbrokers is another option with more choice of fee structure. I don't think they have a minimum monthly fee but they charge you for data.