Commission-Free Brokerage Truths, as Revolut Follows Robinhood


#1

An interesting look in to the world of commission free brokers. What are everyone’s thoughts on this analysis? Can these brokers make their models work on premium subscriptions only?


#2

This is quite a heavy article but there’s a lot of good insights here into what does on behind the scenes with these brokers so thanks for sharing it!

I expect they can, Freetrade for example will make their money from charging:

  • £1 for instant trades
  • For premium Alpha subscription and ISAs
  • 0.5% above the interbank rate for FX

&

  • Earning (& not paying) interest on customer cash balances held with them

While drawing users in by offering commission free trading for users that don’t want instant trades.

We’ve not had a chance to see whether that business model works or not yet, as they’ve not launched the app but I think it’s got potential.

I get that front running institutional investors trades is a bit of a moral grey area, when it comes to the harm that it does to the average retail investor. But as Katsuyama argued in Flash Boys, front running adds very little / no value and drives costs up. I expect the institution’s clients will end up paying those costs. So personally I’d prefer it if my stockbroker could find a business model that doesn’t involve that sort of thing.


#3

Hi @alexs

Thanks for your response and yeah definitely a weighty read!

I guess, as with many Fintech plays, it relies on sufficient volume to scale. Certainly going to be an interesting few months and all good for retail investors :grinning: