Just read an article in the WSJ about a new brokerage being launched on June 19, 2000 - http://www.freetradez.com/default.htm that offers commission free trades (internet/telephone) for both market and limit orders. Free Level II. No payment for order flow on trade executions too. Some large $ are being invested so this could be interesting - i.e. Verio is building $30 million in infrastructure for FreeTradez according to the WSJ article. In addition, Internet-traffic management site F5 Networks is involved as well. /mb_html/smile.gif --------------------------------------------- Excerpt from May 26, 2000 WSJ article - A Few Brokerage Firms Experiment With No-Commission Stock Trading By CARRIE LEE - "The newest contender is FreeTradez. The Grand Blanc, Mich., company expects to launch its service on June 19. The FreeTradez fee structure is the most ambitious of the three; the company plans to offer free market and limit orders via the Internet or telephone, and plans to roll out free trading of options and mutual funds later this year. An extensive customer support team will be available at all times. Chief Executive Jasen Watkins says the firm will cover its costs by charging advertisers for targeted ads and through a revenue-sharing credit-card promotion on the site. The company has an alliance with Web-site operator Verio, which is building $30 million in infrastructure for FreeTradez. "We are revolutionizing the industry, we're making money from ads, period," he says. "Customer-service staff and exchange fees are the two largest areas of expense. The way we have targeted our ad support. It allows us to have a profit margin." So far, FreeTradez has marketing deals with Verio and Internet-traffic management site F5 Networks. Mr. Watkins says he is also in negotiations with several large computer makers." --------------------------------------------- Death on Wall Street; 'They Knew It Was Coming. They Just Didn't Know When.' -Jasen Watkins, CEO, Freetradez.com GRAND BLANC , Mich. , May 16 /PRNewswire/ -- On June 19 , 2000 , Freetradez.com threatens to topple the very revenue foundation on which Wall Street was built. FreeTradez , Inc. plans to bury the practice by the nation's most powerful brokerages (online or full-service) of profiting from securities trading commissions. Freetradez.com is today's pioneer in a new world of commission-free online investing. Can a business whose revenues are generated almost entirely off commissions survive when it is challenged by an Internet competitor offering online trading with superior service absolutely free? The competition within the brokerage industry reflects a gradual yet swift lowering of stock trading commissions to gain market share. Yet , only freetradez.com requires no minimum account balance while providing absolutely free all of the traditional and professional tools online investors need: Real-time quotes , Nasdaq Level II quotes , direct and instantaneous trade executions , market news and research , secure email , chat rooms , messageboards , editorials , compliance care , and complete account security. How will the others survive? Why pay to play the stock market? Jasen Watkins , CEO of FreeTradez , Inc. is prepared to transform the financial services industry. "It was the next inevitable step to absolutely leveling the playing field for average investors. No hidden fees , no games," states Jason Watkins. "The industry knew it was coming. They just didn't know when." Mr. Watkins is forcing the brokerage industry to play by his rules , on his terms. No payment for order flow. No $100,000 minimum account balances. No Commissions. Period. There is a tremendous barrier for any of the major online competitors , such as Etrade , Ameritrade , or Schwab to compete , because their revenue stream is commission based. Competing with this commission-free model will result in a devastating effect on their stock prices. Freetradez.com generates revenues on a completely different Internet business model. FreeTradez , Inc. projects gross revenues in excess of $1 Billion in 2001 through the sales of a unique group of financial products and services. The freetradez.com website allows all registered members access to free real-time quotes , market news and research , discussion boards , chat rooms , and the investor institute. The FreeTradez "Invest While You Spend" Platinum Visa Card is the only credit card that rewards cardholders with shares of stock for their purchases and balance transfers. The BrainTrust Mutual Fund Family is the only mutual fund that invests in the talent behind the best performing mutual funds , investing only with the top performing mutual fund managers. The TradeGatez trading platform is freetradez.com's free downloadable proprietary trading software that allows users to trade stocks commission-free while offering advertisers a unique opportunity to sponsor specific stock symbols , target their competitors' stock symbols , demographically target online investors , and sponsor trade executions. Founded in 1999 , FreeTradez , Inc. sets a new standard in the Financial services industry by redefining all brokerage services. Transactional costs , sale of order flow , the blue blood club , and market maker spreads are no longer a factor. Freetradez.com has become the Investor's Advocate. The playing field will finally be level for all. SOURCE Freetradez, Inc. Web Site: http://www.freetradez.com --------------------------------------------- [This message has been edited by wirelessbull (edited May 29, 2000).] [This message has been edited by wirelessbull (edited May 29, 2000).]
Interesting. Zero commission trades and no payment for order flow. The key will be how fast the trade executions are. Am looking forward to the website being launched.
The website http://www.freetradez.com has been updated recently. The launch for this new online broker is June 19, 2000. Given that there are no commissions and no payment for order flow, it appears that there is a strong profit potential on stock trades. Risk is minimized as well. For example, Web Street Securities offers free trades on NASDAQ stock over $ 2 per share and a 1,000 shares or more which I think is great. However, if you're dealing with a major tech stock, 1,000 shares may be quite expensive. But trading only 100 or 200 shares of a major tech stock limits risk by minimizing the investment capital one has at stake. The profit potential is still attractive IMO by trading 100 or 200 shares if one incurs zero commissions combined with a quality trade execution. Comments ? /mb_html/wink.gif
Got to say I'm skeptical. If the guys who do charge commissions and do get paid for order flow can't make a profit (didn't E*Trade post another losing quarter recently?), how the heck is some outfit who's supposedly doing neither? Is this another "we're going to get rich with an IPO and then it doesn't matter if we're ever profitable" deals? Sorry to be negative, but there have been too many "new business model" companies that can't turn a profit and lose money even faster the more customers they get. Online advertising hasn't proven to be sufficient for any of these companies. It would be great if they can actually deliver the same direct execution capability and speed and quality of a Cybercorp or RT3 broker but with no commission cost. But boy is that going to be tough to do properly long term and pay for it just off advertising revenue. Whether this ends up like Amazon and the others (billion dollar revenues and billion and a half dollar expenses) will be interesting to watch.
The article about FreeTradez.com in the Wall Street Journal indicates the company believes it has targeted ad support in a manner that will allow a profit margin... ie. "We are revolutionizing the industry, we're making money from ads, period," he says. "Customer-service staff and exchange fees are the two largest areas of expense. The way we have targeted our ad support. It allows us to have a profit margin." One key question is will investors endure advertisements in exchange for zero commissions(online/telephone)/quality trade executions/24 hour customer service/free NASDAQ Level II/and other services provided by FreeTradez.com ? For myself, I'll be glad to have my eyeballs captured as long as I receive the promised services from FreeTradez.com. This could be a win-win for everyone (i.e. investors/advertisers/FreeTradez.com)if the business model is successful. Also, FYI. FreeTradez.com was mentioned in the June 8, 2000 edition of Business Week Magazine. /mb_html/biggrin.gif ----------------------------------------------------------- "At the other end of the spectrum is FreeTradez.com. This Grand Blanc (Mich.) startup says its June 19 launch promises free Nasdaq Level II quotes and real people providing customer service 24-7. Of course, you'll have to endure advertising. Say you want a quote on ''F,'' the ticker symbol for Ford Motor. A Ford banner ad will pop up--unless General Motors bought the space. Advertisers are queuing up, says founder Jasen Watkins." -----------------------------------------------------------
This brings up an interesting question I've been wondering about. Does anyone have an idea how much it costs these brokers to execute trades? I've been very curious since companies like Tradescape and IB have offered minimum commissions in the $1 range.
That's an excellent question and will vary according to the broker IMO. I'd also like to know what the average transaction cost is for a broker to execute a trade. While some costs are uniform - i.e. exchange fees, other costs may vary substantially when comparing the brokers... i.e. the level of customer service to be provided. In Freetradez.com case - these two cost elements represent the two largest areas of expense. The Business Week article went into further detail regarding the cost of executing a trade... "And at a top ad rate of $50 per 1,000 viewings, FreeTradez will have to subject customers to 200 ads to cover the cost of clearing one trade--and another 200 to pay for a month of Level II quotes." That's a lot of ads so it will be essential they don't get in the way of trading. I also found the following website interesting regarding breakeven points for daytraders given certain assumptions (i.e. # of trades per day etc.) according to the SEC. If you turn these figures around and consider zero commissions/quality executions/no payment for order flow - the profit potential of daytrading increases substantially IMO. /mb_html/biggrin.gif ----------------------------------------------------------- http://www.sec.gov/news/studies/daytrep.htm B. Fees and Costs Day traders incur significant trading costs. Day-trading firms generally charge commissions of between $15-$25 per trade and charge a substantial amount for additional services such as RealTick III data feeds, news, and exchange fees, which range between $50-$675 per month.14 Day traders must factor in these fees and costs in determining the point at which they are able to make a profit. The following graph highlights the fees and costs of day trading: For example, a day trader who makes 50 trades per day at a firm with moderate fees ($16.70 per trade, $150 per month), must generate $16,850 each month in trading profits to recoup the costs of the trades. In addition to the costs and fees described above, many firms stated that they require prospective customers to have a minimum amount of money to open an account. A February 2000 review of seven large day-trading firms revealed that five firms required initial deposits ranging from $20,000 to $75,000. A few firms noted, however, that their initial deposit requirements may be relaxed in certain circumstances, depending on the experience of the prospective day trader. Two of the seven firms did not indicate any minimum capital requirement. -----------------------------------------------------------
If they're giving really free Level II (i.e., they're eating the Nasdaq Exchange fee) - they'd have to hit you with 1000 ads a month just to pay the exchange fee. The cost to provide the whole trading infrastructure must not be cheap. E*Trade charges, what, $8-10/trade AND gets paid for order flow and STILL isn't profitable. You'd have to go through E*Trade's, Ameritrade's, etc. P&Ls in detail to see what their real costs were. Every company thinks they've got the right (or a revolutionary) formula to be profitable (Amazon did when it launched), but in an ad supported operation they'll have to hit you with a lot of ads (can they really hit you with 200 ads per trade without affecting either the performance or making you freak out?). God help the guy who does say 50 trades per day because he figures now it doesn't cost anything. Can they really hit him with 10,000 ads a day? That's a new ad every other second for the entire trading day. Advertisers are interested in average persistence time not just number of impressions. They'll also have to generate a lot of clickthrough business or the advertisers they've got lined up won't see a bang for the buck and will eventually drop out. So while some people might be willing to put up with a constant stream of advertising flashing at them (potentially at warp speed) in order to get zero commissions (not me though) - if they don't take the time to click through and show return to the advertisers, it'll fail. Also, I'm not sure why anyone would conclude that just because you're trading Ford stock that you'd be interested in seeing an ad about buying a Ford. This will be a very interesting experiment to see unfold. Hopefully they pull it off and don't fold up (or rip off investors with yet another IPO that won't ever make money). If they can actually deliver good service levels AND turn a profit doing it - it'll be a pretty big deal.
I agree with you. Something doesn't add up IMO regarding the number of advertisements investors will have to endure. The math shows that the ads would be coming at investors fast and furious. If the ads are not displayed long enough for the advertisers to get their moneys worth - they won't bother in the first place. Also, it would be annoying for investors to be bombarded with ads being delivered at the speed of light. /mb_html/frown.gif My gut feeling is that there must be more to the story than what Business Week reported as it is difficult to fathom the FreeTradez.com business model foundation having such an impractical basis. FreeTradez.com is obviously after active traders/daytraders as a target market and would not expect these customers to endure such an avalanche of ads. I would venture to guess that the FreeTradez.com business model is built upon a more reasonable basis that may prove workable for all... (i.e. investors, advertisers, FreeTradez.com). Verio is building $30 million in infrastructure for FreeTradez so someone must believe that the business model is promising. The Wall Street Journal article also mentioned ... "So far, FreeTradez has marketing deals with Verio and Internet-traffic management site F5 NetworksMr. Watkins says he is also in negotiations with several large computer makers.". We'll know the details soon enough. /mb_html/smile.gif FYI, this was the entire Business Week article.... http://www.businessweek.com/2000/00_24/b3685274.htm [This message has been edited by wirelessbull (edited Jun 11, 2000).] [This message has been edited by wirelessbull (edited Jun 11, 2000).]
I'm curious how the FreeTradez.com Platinum Visa credit card works. When it rewards cardholders with shares of stock for their purchases and balance transfers... what stock is FreeTradez.com referring to ? ---------------------------------------------------------- http://www.financialserviceonline.com/html/newswire/051900_3.htm And Now For Something Completely Different⦠Online brokerage firm FreeTradez Inc. says it plans to offer commission-free online investing. The Grand Blanc, Mich.-based firm says it requires no minimum account balance, while providing free trade executions, real-time quotes and market news and research. Freetradez says it generates revenues on a "completely different" Internet business model. The TradeGatez trading platform is freetradez.com's free, downloadable proprietary trading software that allows users to trade stocks commission-free while offering advertisers an opportunity to sponsor specific stock symbols, target their competitors' stock symbols, demographically target online investors and sponsor trade executions. Also, the FreeTradez "Invest While You Spend" Platinum Visa Card is the only credit card that rewards cardholders with shares of stock for their purchases and balance transfers, it says. The service will launch on June 19, 2000, says FreeTradez. ----------------------------------------------------------