GigaOM » Skype backer takes on ETrade with free trades

Om Giga is reporting a story of a new start up that is going to offer commission free share trading, funded by advertising. This story may send a shiver through the retail brokerage commission which is already operating in a commodity space, but may also prompt some scepticism about what's going on.

However, the securities trading business is one that I've spent 17 years involved in and there's always an angle. So how might this work in practice
- they could be charging market makers for their flow. If the volume of shares you trade is sufficiently sizeable, market makers have been known to pay for flow because of the information content value, not to mention the ability to satisfy their inventory requirements
- they could internalise some of the flow provided that there are sufficient buyers and sellers in the same stock
- they could be marking the price up or down, in the same way as commission free foreign currency outlets operate - wholesale FX operates a zero or near zero spreads, so when you see a spread on the board that you could drive a bus through you'll know how they are getting rich

Sometimes, when you see a deal too good to be true, it is.

posted by John Wilson @ 9:58 PM Permanent Link newsvine reddit


At 10:05 PM, Anonymous Anonymous said...

See OM Giga's blog


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