No love at Techcrunch for Zecco, a new startup that is offering free online stock trading. Is it because they have a business plan?
Om gives a good run down. As a startup concept goes, this has the ability to deliver major disruption, it could literally change the market place, after all, why would you use a online discount broker that charges between $10-$20 per trade when you can do it via Zecco for free. They claim the actual cost of doing a trade for them is $2 per trade, but they believe they can drive this down further as they gain more users. And yes, they a relying on advertising (indeed, they’re even running Adsense ads) but as we all know, financial terms pay very well per click on Adsense, direct advertising on the site would pay even better. So the idea: they offer trading for free and promote other products to make a profit, but more importantly unlike so many other Web 2.0 startups, it would appear they’ve got a business plan and financial projections that means that they well and truly could.
Two points for me: I’m not a share holder, but I once dabbled in a bit of online trading a couple of years back, I sucked at it, but the one thing that held me back was paying $20 per trade at the time, had I been able to execute trades for $0 I would have day traded a lot more than I did and cashed in and out of stock more often, and hence probably more likely at a profit. Secondly, I’m surprised that the cost of executing a trade is even as much as $2, I guess the cost is in having the equipment, networks and backend to support the trading. I worked in merchant banking back in the days prior to the ASX introducing Chess (their electronic trading system), indeed I was working in the field when it was first introduced. I can remember running cheques around Sydney for literally hundreds of millions of dollars to complete the settlement of trades made…yep, you use to have to physically deliver a paper cheque to complete a major trade! Times have changed alot since then, its all automatic now, all electronic. Most of the physical cost is gone. If there is major steps in the evolution of equities trading, Zecco could herald the last major revolution, and maybe one day we’ll all look back at the thought of paying for equities trading the same way we look today at the thought of paying for news online 🙂