Stock Trades The Latest Use Of The 'Free, With Ads' Business Model
from the discount-discount-broker dept
The world of finance has so far been incredibly resistant to the changes being brought about by the web. Sure, all of the banks and brokers have web interfaces for their customers, but at its core, it’s still a very tightly controlled industry — no doubt aided by the fact that finance is one of the most highly regulated industries. Now one of the initial investors in Skype is backing a new online broker that promises to do away with equity commissions. The company figures that a trade costs about $2 to execute, but that most brokers, even discount ones, have to charge much higher than that in order to recoup their heavy marketing budget. Just as Skype took off based on word of mouth, if this company can do the same, it will have a significant cost advantage over its competitors. And as for how it will recoup its incremental trade expenses, the company plans to sell advertising on the site. But while the prospect of free trading sounds nice, it likely won’t be enough to lure customers away from the established players. When you’re dealing with thousands of dollars, a $10 commission isn’t such a big deal; instead investors care about execution, analytical tools, solid security and more. The real revolution in finance will be when someone really figures out how to bring Skype’s peer-to-peer model and applies it to trading, cutting out the need for the established exchanges. But considering how regulated this area is, that’s unlikely to happen soon.