http://www.freetradez.com - Free Commissions

Discussion in 'Retail Brokers' started by wirelessbull, May 29, 2000.

  1. Regarding advertisements on FreeTradez...the company addresses this when you log on to the FreeTradez website. The company makes it clear that the ads will be displayed in a manner strategically placed not to annoy investors. The company also stated the the ads displayed would be tastefully integrated into the website. FreeTradez references the June 12, 2000 Business Week article so it appears that the company takes exception to some of the comments contained in the article. That's very good to hear IMO. /mb_html/wink.gif

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    http://www.freetradez.com

    "FreeTradEZ may have ads for you to see here and there, however the ads that we get paid to display on this site are tastefully integrated into the site. They are strategically placed to not annoy you. This is how we get paid. We will not make a dime from any of the transactional costs ($140 billion for 1999) associated with the securities business."
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    #11     Jun 11, 2000
  2. Yup... this makes it pretty clear to me that FreeTradez business model is not based on having investors endure an avalanche of ads in exchange for one free trade. /mb_html/wink.gif
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    http://www.freetradez.com

    "Why has their been so much hostility when the press has done stories on the concept of free trading? We have heard it all, from being totally "impossible", to making users hack their way through a jungle of ads just for one free trade."
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    [This message has been edited by wirelessbull (edited Jun 11, 2000).]
     
    #12     Jun 11, 2000

  3. Very interesting... the same person who wrote the recent Business Week article that mentioned FreeTradez wrote the article below. It appears that he thinks payment for order flow is a good thing. /mb_html/smile.gif

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    http://www.businessweek.com/1999/99_15/b3624142.htm

    A Kickback You Can Enjoy

    Ever wonder how your online or discount broker can make money charging $14.95 for a stock trade that would cost $100 at a full-service firm? A big part of the difference is you're not the only one paying your broker for the order.

    Most discount or online brokers don't execute orders--find a seller or buyer to take the other side of your trade. Instead, your broker sends the order to an exchange or a dealer, a trading firm that makes a market in the stock you're ordering. Correction: It sells your order--for a neat profit of 1 cents to 2 cents a share.

    Smells fishy? In most businesses, an agent isn't allowed to collect from both sides: A real-estate agent can't represent the seller and the buyer. But in stocks, payment for order flow is common and legal. The Securities & Exchange Commission says it's not harmful. And economists say the system even cuts individual investors' overall costs. Order-flow payment is a rare case of a kickback that benefits the customer.

    UNINFORMED. Here's how it works. Dealers and exchanges profit on the spread between the bid and ask prices--what a dealer will pay and charge for a stock it trades. The more trades they process, the bigger their profits. So dealers pay brokers for order flow. The payments determine where your broker sends your orders.

    Dealers want to execute your trades because, frankly, they don't think you know very much. ''Everyone wants to deal with the uninformed investor,'' says Georgetown University finance professor James Angel. The dealer figures your trade isn't a signal of impending news or other factors that will rapidly move the stock price--and jeopardize his spread, usually 6.25 cents to 25 cents a share.

    Dealers' actual costs to make a trade run about 3 cents a share. Since the least possible spread for most shares is 6.25 cents (the equivalent of one tick, the smallest price increment that can be quoted), a dealer can afford to spend 1 cents to 2 cents a share to buy profitable order flow. Virtually all brokers sell their orders for Nasdaq stocks, and many sell orders for New York Stock Exchange-listed shares to regional exchanges and ''third-market'' dealers such as Bernard L. Madoff Investment Securities in New York. The NYSE floor is the only market where order flow isn't explicitly sold.

    The saving grace is that order-flow rebates are passed on to clients via lower commissions. ''Deep-discount brokers couldn't exist without order-flow payments,'' says Stephen Franco, an E-commerce analyst at U.S. Bancorp Piper Jaffray. In a study for Nasdaq, Georgia State University finance professor Robert Battalio found that ''many trades routed based on order-flow inducements enjoy lower costs.'' Indeed, some experts say these payments are the best way to share trading profits with small investors (table).

    But what about getting the best price for shares? Order-flow routing means dealers are less likely to vie on ''price improvement''--giving clients a price between the dealers' bid and ask. Chances of getting a price break are less than 50-50 on the NYSE--and worse on Nasdaq. So for most investors, ''the certainty of a lower commission is better than playing the odds'' of a price improvement,'' says Battalio. Clients of full-service brokers take note: They also farm out some trades, so you pay more but may still get poor execution. The SEC requires brokers to monitor dealers' executions; clients can ask how often a dealer's trades get price improvements.

    If you're a purist, you can avoid deals that include order-flow payments. You can place limit orders, in which you set the price you're willing to pay--but you risk having the trade delayed or not executed at all. Also, a client who orders by phone can direct a broker to send trades to the NYSE. (Traders who order online may not get that choice.) On Nasdaq, one broker offers

    a choice of rout-ing: Delta Trader (www.deltatrader.-com, 800 949-0205), a unit of San Francisco's Preferred Capital Markets, charges 2 cents a share ($15 minimum for the whole order) to execute trades, vs. $7.75 for a trade that's sold.

    Economists' stats show the payoff of choosing how your trade is executed doesn't justify the extra expense. The idea of rewards for your broker may not be appealing. But if your concern is the bottom line, you shouldn't worry about payment for order flow.

    By Mike McNamee



     
    #13     Jun 11, 2000
  4. Excellent article on the dangers of payment for order flow. The timing is right IMO for FreeTradez to highlight to investors that it does not accept payment for order flow. /mb_html/wink.gif

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    http://www.nytimes.com/library/financial/columns/061100market-watch-col.html

    June 11, 2000

    MARKET WATCH
    When Cheap Stock Trades Aren't Cheap
    By GRETCHEN MORGENSON

    The popularity of online stock trading has exploded as individual investors have come to believe that their computers put them on the same level as the professionals, at a very low cost.

    But it is becoming increasingly clear that online trading is far costlier than most investors think. Moreover, it does little to level the investment playing field. Instead, judging from a report released last week by the General Accounting Office, online brokerage firms are Wall Street's latest incarnation of the Wild Wild West.

    Government researchers collected data from 12 online firms in 1999. They were not identified, but they accounted for almost 90 percent of online trades.

    Delays and breakdowns were a big problem -- so common at one firm that it said management did not track them.

    Online firms provide customers with little information, the G.A.O. found, on the risks of margin trading -- that is, using borrowed money to buy stocks. Nearly half the companies did not detail the risks for their customers opening margin accounts; only a third posted on their Web sites such information as the list of stocks they would not allow customers to buy on margin. One investor found he had bought such a stock only when his broker called to demand $75,000.

    But even these problems pale compared with the difficulties investors have getting online trades executed at the best possible price. Good execution is crucial to improving investors' profits. But because the way a firm handles a trade is not as apparent as the $8 commission it charges, few investors understand how important execution is or how they can be victimized.

    Included in the report was a review by the Securities and Exchange Commission of 29 online brokerage firms. Last year, the S.E.C. found, more than half were not meeting their obligation to provide the best execution for their customers' trades. A major reason is that most online firms have other firms complete their customers' trades in exchange for payments of as much as 1 or 2 cents a share. These payments, big surprise, determine where a customer's order is sent, even if another market or trader is offering a better price. On a 1,000-share sale, a customer would receive $62.50 more if he got a price one-sixteenth above the prevailing market.

    Of the 29 firms the S.E.C. investigated, 17 "improperly emphasized payment for order flow in deciding where to send orders." The regulators said the firms did not even try to assess the prices available from trading firms other than those that were paying them. Indeed, most routed orders to traders whose execution quality was well below industry averages.

    It is high time investors understand that payment for order flow is corrupting trade executions at many online firms -- and costing investors a bundle.

    Steve Galbraith, a senior analyst at Sanford Bernstein, an investment firm in New York, said such conduct helped explain the outsized profitability of some online brokerage firms.

    "Execution is the securities industry's best-kept secret, and payment for order flow is part of that," Mr. Galbraith said. "You're seeing monopolistic-type returns in what really should be structurally an economically competitive industry. I think it's one of the paradoxes of the market today."

    Senator Carl Levin, the Michigan Democrat who requested the G.A.O. study, agreed. "Pay for order flow is a good deal for the broker but is too often a bad deal for their clients," he said. "The S.E.C. needs to get after this problem quickly and aggressively." Until then, investors are vulnerable to bad executions and the high costs associated with them.

    The S.E.C. should require brokerage firms to monitor trade executions, tracking how many trades are done at prices better than those specified by investors. This is the information age. Why should investors be clueless about how much money they are losing when they trade stocks?

     
    #14     Jun 11, 2000
  5. wireless -

    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.

    Why would you assume such a thing?

    There are way too many dot com's with totally flawed business models that launch with the sole intention of having a good story to tell, a "plausible sounding" business model that they can fluff and hype, and a way of spinning their "growth" (even while losing money) as a good thing. Their ultimate goal from this is to get to IPO heaven with enough pump and smoke so that the principals can liquidate at least a small share of their holdings (so it doesn't look bad) which translates into a lot of cash.

    Ever look at the insider selling transactions at companies like AMZN, EBAY, CMGI, DLCK, etc.? The principals cashed out 8-9 figures worth of stock and may not even care whether the company ever produces enough profit to justify it's stock price. Divine Interventures is another soon to IPO company that looks like it's architected for the sole purpose of letting it's princpals cash out for big money.

    Don't ever ASSUME there's more to any dot com's business model than meets the eye.

    BTW, the statement you cite from their website does NOT make anything clear. It simply confirms that there have been a lot of questions regarding the efficacy of their "business model".

    It doesn't really explain anything about how many ads will be needed per trader per trade to cover costs or how they'll guarantee sufficient clickthrough business to justify keeping their advertisers long term or really anything else about the key questions.

    Also, don't confuse their having received sufficient capital to spend $30 million in initial infrastructure (especially since Verio may actually be an early investor) mean that anyone "believes" in their business model (at least the publically disclosed one).

    Never confuse belief in the business model with belief in the exit strategy (i.e., the way the early investors will make a good profit on their investment). The two are not synonomous. A VC will put money into an enterprise if he really believes he'll be able to turn a big profit from an eventual IPO, regardless of whether he thinks the company can ever be profitable long term. Once he's got his profit, he doesn't really care what happens to the company. Especially if that was the idea behind the enterprise all along.

    Actually, so far, the stuff on their website is devoid of details and the only conclusion you CAN draw is that there isn't enough information to draw any conclusion about the viability of their plans.

    P.S. "tastefully integrated into the website" is an example of meaningless "information" that neither proves nor disproves anything.

    What's tastefully integrated? What's tasteful for them may not be tasteful to others.

    How many ads will fly at you? Etc.

    Only time (and demonstrating real profits) will tell for sure. In the meantime, it's an interesting yet to be proven concept with a lot of questions.

    As I said earlier, hopefully they pull it off and don't just turn out to be another IPO in the making aimed at sucking money out of investors.

    If they can actually deliver good and fast executions for free (and still make a profit long term), everyone wins.

    [This message has been edited by ArchAngel (edited Jun 12, 2000).]
     
    #15     Jun 12, 2000
  6. ArchAngel - good post. What you said is certainly plausible. As an investor/trader, my hope is that the FreeTradez business model proves viable long term. We all win in that case. As you correctly pointed out, it's probably wise to be somewhat skeptical until more details are forthcoming. In the meantime, I'm looking forward to opening an account with FreeTradez.com and trying it firsthand. /mb_html/wink.gif
     
    #16     Jun 12, 2000
  7. The FreeTradez brokerage is about ready to launch !! /mb_html/smile.gif

    [​IMG]

    --------------------------------------------- http://www.freetradez.com


    "Monday June 26th, 8:40am est - Everything is a go. The non-flash site should be up and running - including account forms as well as other updates - later on this afternoon. We appreciate your kind patience and encouragement during this very very busy week. We are working non-stop to provide you the best possible online investing experience. Please check back often."
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    [This message has been edited by wirelessbull (edited Jun 27, 2000).]
     
    #17     Jun 27, 2000
  8. #18     Sep 17, 2000
  9. wirelessbull
    You said in an earlier message:
    "What you said is certainly plausible. As an investor/trader, my hope is that the FreeTradez business model proves viable long term. We all win in that case. As you correctly pointed out, it's probably wise to be somewhat skeptical until more details are forthcoming. In the meantime, I'm looking forward to opening an account with FreeTradez.com and trying it firsthand"

    However, reading your posts it seems clear that you actually work for Freetradez. If so you should state it, both MBT and IB have had execs answer questions on this forum and have come clean.

    It seems BS to me however, naturally I am interested. So perhaps you can tell us some more. Its been delayed a long time, and now the website is open but you can't get any information unless you give all your personal details.
    Let's be abit more open.


     
    #19     Sep 18, 2000
  10. globaltrader - let me make myself perfectly clear. I do NOT work for freetradez.com and am not associated with them in any way except I signed up as a customer. Do not make assumptions. You know as much as I do about the company.
     
    #20     Sep 19, 2000