Skype backer takes on ETrade with free trades

47 thoughts on “Skype backer takes on ETrade with free trades”

  1. I think that Zecco answers two needs:
    1. Zero commission trading
    2. A nich social community for traders, finance guys and consumers interested in trading where they can share tips, get advice from each other and discuss the latest finance rumours.

  2. There is obviously a huge demand for zero commission trading. It gives trading based on technical analysis a whole new dimension – which is why this won’t fly.

    You have to be sceptical of any business model that has costs increasing so much in proportion with with new users.

    The business model reminds me of the Web 1.0 bubble companies that wanted to pay people to watch ads. When times get tough in advertising, Google can reduce costs. Not so for Zecco.

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  4. Hi

    Just a quick comment on the financing and ability to follow on through:

    Marcel Boekhoorn — Dutch billionaire investor who recently sold Telforth to KNP at a $1,4 profit — has helped finance the venture and will continue doing so … so I have to say we’re in pretty good shape vis-a-vis ability to follow through in the face of competitive onslaught.

  5. They need to be able to deliver top notch execution which as far as I know is not easy. E*TRADE spent over $400M to develop the initial system and I expect still spends a significant amount to keep it up. Many of their tools are not of use except to higher end traders so there is probably a niche for a company like this. However they need to be prepared to offer a high quality system given the nature of the application.

    As a pretty active trader with E*Trade I expect to pay about 1% of my asset value per year in commissions. In a lower-return world this would make a difference.

    It may also be worth noting that with E*TRADE Visa which I use now my trades are commission free.]

  6. Its all about perception. As the first comment most of the mainstream investors will be very sceptical to park their nestegg with a “internet brokerage” with unproven biz model.

    This may attract the smalltime daytraders but they will always be a cost center to Zecco as financial advertisers value them less (its tough to sell a mutual fund to a daytrader vs a regular joe saving for retirement) and also daytraders generate much more trades costing Zecco more.

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  8. There are three legs to the revenue model. If you look at Etrade’s 10-K, you can see that of their $1.6 billion in revenue only $600 million came from commission revenue. 49% of their income comes from margin spreads and interest income. The other leg is higher margin products that do cost.

    The advertising is just gravy. However, advertising revenue may be more sure than comissions and don’t lock with the market.

  9. Zero commission will be common for both retail and Institutional equity trading in the next years. Trading will be like free envelopes at the post office. Commission income for a large number of second tier banks and old style brokers will go down dramatically and a large number will have to close their equity trading and research operations . Old style investment banking is dead, technology rulezzz!!

  10. This story may initially send a shiver through the retail brokerage commission which is already operating in a commodity space, but may also prompt some scepticism about what’s going on.

    However, the securities trading business is one that I’ve spent 17 years involved in and there’s always an angle. So how might this work in practice
    – they could be charging market makers for their flow. If the volume of shares you trade is sufficiently sizeable, market makers have been known to pay for flow because of the information content value, not to mention the ability to satisfy their inventory requirements
    – they could internalise some of the flow provided that there are sufficient buyers and sellers in the same stock
    – they could be marking the price up or down, in the same way as commission free foreign currency outlets operate – wholesale FX operates a zero or near zero spreads, so when you see a spread on the board that you could drive a bus through you’ll know how they are getting rich
    – they can be making good interest revenues from margin and client deposits

    Sometimes, when you see a deal too good to be true, it is.

  11. definitely… someone should do this.

    there’s very little middleman value in online brokerage, and the costs should be driven close to zero.

    why shouldn’t companies be doing this service direct themselves? it can be an outsourced function, but no reason they shouldn’t let their shareholders initiate DRIPS right from the start?

    hope they’re successful.

    • dmc
  12. Actually, this has already been tried. Ameritrade had a little-known division called Freetrade. No marketing, no advertising, just word of mouth. they couldn’t make it work. They’re now $5 per trade. True, they weren’t doing the whole social networking thing, but I think it will be tough. However, at least these will be people with money, so theoretically a better crowd to market to than, say, myspace. Even though google and yahoo are going after myspace and facebook deals, it still remains to be seen if that will really pay off in the long run. We shouldn’t forget that Yahoo paid $5B for broadcast.com and then later basically shut it down. So these guys are not beyond making foolish investments. It remains to be seen if thses are real businesses or if we’re again just seeing some people at the top cash out of what is essentially a voluntary pyramid scheme, but won’t be recognized as such until after the fact.

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  14. Zecco will make money from cash balances, options (cheapest in the market I heard),other financial product not only advertisement. 49% of ETrade’s income comes from margin spreads and interest income…check Etrade’s figures. They could offer 0$ commissions costs trades easily if they wouldn’t have over 2000 employees,over 200 million marketing costs and legacy systems.
    I think Zecco did their homework well. The fact that the Skype invesors seem to be behind Zecco is telling. Most of the time those kind of investors are smart enough not to invest in a plan driven by just ad revenues

  15. Check out the “Zecco Preview” link on their home page. Would you trust your money to a company that spells losers: “loosers”?

    Congrats to Mike B. For finding this typo. We just fixed it. Any more valuable suggestions? Please post them in our Feedback Forum on Zecco.

  16. This isn’t a new idea. It’s been done. One of the other pieces of revenue for E*Trade, and quite a few other online brokers, is payment for order flow.

    When you enter a stock or option order, some brokers employ technology that seeks out the best price. Say you entered an order when the markiet is at $10/share. A broker who offers price improvement might find you a trade at $9.98. If you were trading 1000 shares, you just saved $20.

    But other brokers route their orders to market makers who PAY THEM for your order. Why? Because they are either selling from their own inventory, or bumping the price a smidgen and taking it from you. So your order when the market is at $10 might get executed at $10.05.

    Now your “free” order just cost you $50.

    I will cover this topic in more depthy in my Barron’s column (“The Electronic Investor”) in the not-too-distant future.

  17. Re: yahoo’s message boards, Yahoo recently made major changes to their message boards, causing an enormous backlash from users. Management at Yahoo completely failed to understand that stock message board users don’t want messages organized by topics (comments are too dynamic, too rapid fire for topics), they want message organized by chronological order with most recent messages at the top. This new startup, if they’re smart, will study how Yahoo used to do their boards 6 months ago. If they can attract a fraction of Yahoo’s traffic, they’ll build a nice business, with or without the zero commission trading.

  18. Go to Zecco.com AND SEE WHO IS ADVERTIZING!!!!! SOGOINVEST is advertizing??????? Why would Sogoinvest be on their web-site advertizing???????????? This isn’t making sense!!!!!!!Why would you let SOGOinvest advertize on Zecco.com(WHEN ZECCO trade cost is going to BE $0.00)???? YOU MAY WANT TO THINK ABOUT THIS!!!!!!Vacman

  19. Apparently they are spamming bloggers too: http://www.wealthjunkie.com/2006/09/23/zecco-spamming-bloggers/

    Two comments to this:
    1. We were trying out a new feature on google that was not fully documented. Had no intention of making anyone join a group against their wishes. Just evaluating online tools. This is not spam. So, we feel especially bad about this because everyone who got the google groups communication is someone whose blog we read and like.

    1. I would like to point to the fact that we actually offer to split advertising revenue with bloggers that use our site to host their blogs — and believe we will be able to generate many more pageviews for our bloggers than most will be able to on their own.
  20. Two comments to this:
    1. This is not about spam. We were trying out a new feature on Google that was not fully documented. Had no intention of making anyone join a group against their wishes. Just evaluating online tools. So, we feel especially bad about this because everyone who got the Google groups communication is someone whose blog we read and like.

    1. I would like to point to the fact that we actually offer to split advertising revenue with bloggers that use our site to host their blogs — and believe we will be able to generate many more pageviews for our bloggers than most will be able to on their own.

    See you at Zecco. For your free trades, inspiring blog posts, or just to browse around.

  21. Becoming a household name is imperative in order to capture the market of personal investors. Expensive merketing is thus unavoidable in order to compete with the huge web investment portals.

  22. Good discussion going there. I’m part of the Zecco team and just wanted to clarify how the business model works. Think of it like this. If ETrade ends up spending $6 per transaction in sales and marketing costs and we spend nothing on marketing but instead give away a $2 trade and rely on word of mouth to get the word out … than we are doing three times better than Etrade on customer-aquisition costs pr. trade. On top of that we will also be generating revenue on margin trading and interests on accounts. So I believe the business model is rather solid … and we’re certainly looking forward to put it to the test. Come and join us all for our online launch party on Oct 9th.

  23. ” One other suggestion would be to short this dog as soon as its shares hit the market.”

    hey Zecco Scam:

    ” Sell’ m to me when u can! More than happy to pick’ em up.”

    btw: did u get one of their free hotdogs on WallStreet last Monday?

    c ya, -d.

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  25. Social investing is a valid space – as a media venture – because a fair amount of social activities revolve around investing and because ads for financial services are at a premium. So offsetting trade costs with advertising might work out.

    Overall, social investing websites will have to overcome three top challenges to succeed:
    – build a community while keeping spammers at bay;
    – rank and rate information in a way that makes financial sense
    – aggregate content beyond their own website.

    See a more in-depth analysis on my blog: http://phc.typepad.com/infonomics/2007/02/social_investin.html

  26. from zecco faq:

    Do you make money on the spread between bid and ask?

    Zecco Trading does not make markets and therefore does not participate in the spread between the bid and ask on any security. All of our orders are entered as agency orders and are therefore never marked up by us. We route all orders through our clearing firm Penson Financial Services who then automatically routes them for best execution.

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  28. Zecco cancels accounts over negative feedback over the recent pricing structure change. Zecco did it to me. Lets see how soon this gets edited.

    Watch what you say to zecco. BEWARE of ZECCO.com for investing, trading, options and stocks. It took over 5 weeks for them to setup my account and it still has not been created correctly. I don’t even have any stocks to transfer in. When talking to customer service I need to start over every time which takes a lot longer if any problem needs more than one phone call to resolve. There have been reports from people that the setup process is not clear so if you fund your account after they say everything is a go and you have not turned in your government tax papers they will withhold a sizeable chunk of your money.

    Recently they changed their policy where if you no longer meet the New minimum balance requirements you do not get free trades. Even though their whole business model is built on free trades you don’t get any. Now my account is halfway setup at this point and I log in and I receive the notice saying everything is changing the minimum requirements for account, and the amount of free trades, and that you must meet the $2500 minimum to be able to receive their now ten (down from 40) free trades a month. I have not even traded my first stock with this service and the terms are changing. On top of that there is a $50 transfer out fee (up from $0) that is imposed now. This seems like bait and switch to me.

    Now they contact me because they don’t have the required information that was already sent to them when my account was setup the first time. I send back that I don’t have time to start this process over with and I do not feel confident more or less in the company anymore. I also let them know that I am not happy with their business model now affects me and how I have been treated as a customer since the start. Now I have heard people criticize the company on their site which is always deleted by the moderator’s but also on the internet. I felt that I would make my own decision as their site seemed informative and I thought I know what I was getting into. All I wanted was for them to understand they are pushing customers away and that it would be beneficial to grandfather the people in that have been with the company or just signed up before this was enacted. I was not notified of this change by email or us mail as they stated before it went into affect and I just wanted to use my account with their new restrictions if need be but not be shutout by the new minimum balance.

    Now I have my major funds at another broker since I wanted to make sure this company was of the straight and narrow before I brought my whole account over to them (like a lot of people do). Now these people are shunned away which may lose them business.

    Now I understand that they are a new company but they don’t need to close my account because I stated I didn’t think I what they were doing was fair to me and to others. Most business owners would like to hear the feedback before it costs them money from customers taking their business elsewhere.

    Moral of the story is watch what you say to Zecco they may close your account if they don’t like what you say.

    Zecco if you would like to contact me I would be more than happy to talk to you.

    Thanks

  29. STAY AWAY FROM ZECCO!!!! I have a Zecco account that I started about 5 months ago. Zecco’s customer service went from bad to worse. The prices went from great to comparable to other brokerages. The platform went from basic crap to still basic crap. The forums went from community members opinions to only what the editors approve. If it could negatively affect Zecco (something that is almost always true) it will be deleted as if it never existed. The company is a scam. GO TO THE BBB WEBSITE AND CHECK OUT ZECCO’S “F” RATING!!!! I loved it before and recommended it to many. I now recommend everyone to stay away.

  30. Zecco’s model is the future for individual investing. Zecco will do to Schwab, Waterhouse, etc. what they did to Merrill Lynch and other full service brokers in the 70’s and 80’s. If nothing else, they’ll get the others to lower costs. Although they’re not likely to offer all that Zecco does!
    Social networking and financial portal all in one space is the future. Zecco’s model is valid and sound. Their business is quickly developing, as did Schwab’s, and yes they’re having some growing pains. Stick with them, unlike other brokers, they listen to the blogs, etc. and will address these issues, besides their new Zecco Share is unparalleled.
    As far as John/JK’s comments are concerned; anyone with the time to build a website against Zecco and post comments whereever possible, is likely a) a college student and b) someone who doesn’t have the $2500 minumim for free trading. A real investor wouldn’t waste his time worrying about paying $4.50 a trade after receiving 120 free trades per year!

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