Zecco.com has revealed more details about its promise of free stock trades, and is causing a lot of talk for us investors looking for cheap trades.
» Stock Trades – Yes, it’s free and yes, it’s limited. You get up to 10 free market or limit online orders per day, up to 40 per month. After that, they cost $3.50 per trade.
» Mutual Fund Trades – $10 per online trade, no-load only.
» Options – $3.50 plus $.60 per online contract with no minimums
» No minimum to open! (was $2,500)
» No inactivity fees.
» Accounts are SIPC-insured, like most brokerages.
» ACAT fee is $50, not sure whether this means in, out, or both
» IRA accounts available. $30 IRA annual fee and no closing fee.
» Free trading applies only to one account type per person/company. For example, if you open one account for yourself, an IRA, and also a joint account, you can only get free trades one the first of the three accounts opened.
As for how they make money, here is an excerpt I found:
We make our money the old-fashioned way. We earn interest off your money. Hopefully we provide enough value to you as a investor that it’s worth your placing your account with us. This business model has worked for fianncial institutions for about 400 years, it will work for us. It works for most other onine brokerages, too. If you take a spin through Etrade latest 10-K filing, you’ll notice that they make 49% of their revenues from interest. We absorb the minimal clearing fees on a trade as the cost of doing business with you. We also make money on higher margin services like options trades and from advertising on the portal. When we don’t spend $5 of every trade on advertising to get the trade in the first place, we can offer this service at a much more attractive price: FREE. – Sabin Zecco.
Accounts and transactions are done through Penson, one of the largest clearing firms in the country.
By interest they are probably talking mainly about margin interest (which is currently at 10.5%), but I haven’t found any details on interest rates on cash. According to the forums you have the default cash option but can also sign up for a money market sweep account. Another concern that some people have is getting ‘bad fills’, basically not getting the best order routing and therefor the best share price, but it’s hard to find any place that objectively measures this.
As for advertising, they sure are going to get a lot of buzz for this! Only time will tell if it’s enough. My only question now is if they do a hard credit pull when applying. If not, I’m signing up!
Added: I signed up, and there was no hard credit pull for opening an account at Zecco.