Nearly-unlimited Commission-free Online Stock Market Trade InvestingSubmit to del.icio.us | digg it! | Submit to Slashdot
When I was in middle school during the late 90s, I was obsessed with learning everything I could about investing and stock trading techniques. I was pumped, ready to make my first real trade on penny stocks and watch my wealth grow out of nothing from dividends and capital gains. Sadly, when I saw the price tag on a single stock trade, my heart sank. I was even more disappointed when I read the minimum initial investment.
Despite the fact that discount brokerage firms were in vogue back then, the stakes were still kind of high. If you were lucky, you could carry out stock transactions at about $10 per trade. Alas, those discount brokerages wanted serious, wrinkled, grown-up investors who could easily pluck down the $3000 minimum initial investment at a moment’s notice. Come on! I was only in middle school! All I really wanted to do was to invest $25 and see what would happen.
Lack of Experiment-friendly Brokerages
Many experimenting, first-time brokers who just want to “test the waters” with a couple hundred dollars experience this setback. If you plan to invest in a wide variety of companies, the trade commissions will burn a hole in your pocket and severely decrease your net gain.
ShareBuilder - Web 1.0 Trading
When I got a job and – finally - some money to trade, I hired ShareBuilder as my broker. For $12 a month, I was entitled to 6 stock trades placed on any Tuesday at 2 PM. This restriction may seem stringent but it was a lot better than paying $50 more for real-time day trading. I’m more interested in long-term growth.
Zecco - Web 2.0 Trading
Then, I heard about Zecco, a commission-free stock brokerage, from MyMoneyBlog. Intrigued, I checked it out. There had to be a catch. They offered a maximum of 10 free trades per day with a cumulative maximum of 40 trades per month. That is more than enough for any aspiring day trader!
Where’s the Revenue?
In examining any startup, the first thing that comes to mind is the money flow. People always ask, “So, how do you make money?” Zecco, with its unique pricing structure (or lack thereof), is no exception to that rule. From what I’ve read in MyMoneyBlog and The Motley Fool, Zecco’s primary income flows from three sources: cash balances, margin rates, and AdSense.
- Cash balances are understandable. Some investors prefer to keep their “play money” with their broker. Much like a bank savings account, Zecco takes this money and invests it.
- Margin rates, their second stream of income, are a little more complicated. Investors, drunk with the powerful feeling of nearly-unlimited free trades, take out loans from Zecco at high interest rates. Depending on your credit card, you might as well be taking out a hefty cash advance!
- Zecco’s third main source of income caught me by surprise. AdSense? I would never have guessed it! With a highly trafficked website filled with free finance resources pertaining to market trends, data statistics analysis, amateur speculative forums/blogs, and education, scattering a few contextual advertising has the potential of making a good chuck of money.
Zecco’s fee schedule is similar to many other typical brokerages. Check it out on their website in the cleaverly title “What is not Free” section. I’m sure they don’t really make a killing on these miscellaneous fees since they are not so commonly incurred.
Is Zecco Part of the Inevitable Web 2.0 Bubble?
I guess that there really is a free lunch. Zecco even gave hot dogs away to the public on it’s opening day to make a point! In my opinion, Zecco sounds like a great idea! But, I’ll pass … for now. I want to observe it for a couple of months before I move my eggs from my ShareBuilder “basket,” kind of let the soup simmer and the dust settle.
Do you think that this revolutionary fee structure will change the face of the stock market? Or, will it just flop and be like every other discount brokerage? If you’ve tried Zecco or if you have another perspective, please share your thoughts in the comment form below.
Posted on Tuesday, May 29th, 2007