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?
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.