|Moderated By: Richard Bunker -- (Not Moderated) -- Started: 2/8/1999 5:26:00 PM Revision History|
I am not unsympathetic to all of the problems people have had with the online brokers. I have had some myself (with Schwab in my case -- not unique in any way, so not worth discussion). However, it is a time proven fact that you get what you pay for.
As far as I can tell, a no-frills online discount brokerage firm needs to make somewhere in the neighborhood of $50 per trade just to break even. Given that they raise money from investors in order to create their business, they must not only break even, but generate positive cash in excess of the cost of capital. Thus, they probably need to make something like $70 per trade, perhaps $80.
They make this through commission, margin lending, rebates for order flow, trading from their own inventory, routing flow to their own subsidiary market makers and/or specialist firms etc. Many of these activities are those that result in what we clients perceive as "bad" executions, or slow executions, or slow confirms etc.
How many people would really pay something in the neighborhood of $70 per trade to an online broker that really only acted as a pure agency broker? One that executed only on NYSE or NASDAQ, with a trading desk that never 'bet' against the client, that never sold order flow or took the other side for a 'teeny' etc.
If there were a broker that really just worked hard to give best execution, and nothing else, do you think it could make money?
Would you trade there? What would they have to do or not do to succeed? How could they win your trust? How could they attract and retain clients?
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