Wednesday, June 20, 2007

Trading With Zecco

I read a few personal finance blogs, and when I saw an discussion about an online brokerage offering free trading, I was quite skeptical. After a little research, it turns out that is really on the up-and-up.

Obviously the free trades are not intended for the active day-trader, I'm sure they can blow through 10 trades in the first half hour of the day.

Free stock purchases virtually eliminate the entry barrier for small scale investors like myself. One of the things I always wanted to do was fund an investment account monthly with a small portion of my after-tax earnings (after funding my 401(k) and IRAs), but purchasing a few shares of a company for $100-$200 with a commission on both the buy- and sell-side would result in a 10-20% guaranteed loss every time (figuring for a $10 commission). Now with Zecco, I can buy five or six ETFs, a share at at time, without getting robbed during the transaction. It appears that buying in small lots like one or three shares will cost you a bit on execution price (i.e. I put in a market buy order for an ETF trading at $72.10 and I paid $72.30, which for three shares cost me $0.60) the cost is far outweighed by being able to trickle my money in over time and not try to time the market.

I'm assuming that Zecco makes a majority of their money through charging margin interest, and since they don't seem to be advertising heavily and relying on word-of-mouth traffic I guess that's how they can afford to execute free trades.

P.S. Yes, I'm aware the links to Zecco go to an offer for a free ITunes card. If I get free stuff for having a blog what's the point? :-)

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