Have you ever wondered how a free online broker like Zecco makes money? In case you’re not familiar with them, Zecco offers free online stocks trades — up to ten per month as long as you maintain a minimum account balance of $2500. Gone are the days of paying “discount” brokers anywhere from $10-$30/trade.
I’m particularly intrigued by the possibility of using Zecco to invest in Vanguard ETFs, which are a good bit cheaper than their index funds once you get past the commissions.
So how does Zecco manage to offer free trades while still staying in business? They are a business, after all…
According to their FAQs, Zecco makes money from: (1) interest on margin balances, and (2) commissions on “premium” brokerage products like options trading. They also recently starting requiring a minimum account balance of $2500 in order to get the free trades, so I’d imagine that they also make money from holding your uninvested funds. Finally, they claim to keep costs down by minimizing their marketing efforts. Thus, instead of spending hundreds of dollars trying to attract customers, they simply let their fee structure do the talking, stating that they “attract customers by having the best deal in the market.”
This really is an interesting business model, and it’ll be interesting to see what sort of an effect their approach has on the rest of the industry.
If you’re interested in trying them out, click here for more info…
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