JPMorgan unveils free trading(cnbc.com)
cnbc.com
JPMorgan unveils free trading
https://www.cnbc.com/2018/08/21/jp-morgan-to-unveil-new-investing-app-with-an-eye-catching-disruptive-price-free.html
9 comments
This is definitely true, and both journalists and individuals often glance over things like trading fees versus best execution without regard to investing style or intent.
If I'm a retail investor and I'm buying large-cap US stocks, window trading my 50 lot of AAPL at 11 AM for free when the market is $0.01 wide is significantly better than buying $5 commissions. If I have 10,000 shares to buy in a small cap company, these types of systems will usually dump the order off into the market since the system will have few crossing orders. This likely will be a lot more expensive than $5.
If I'm a retail investor and I'm buying large-cap US stocks, window trading my 50 lot of AAPL at 11 AM for free when the market is $0.01 wide is significantly better than buying $5 commissions. If I have 10,000 shares to buy in a small cap company, these types of systems will usually dump the order off into the market since the system will have few crossing orders. This likely will be a lot more expensive than $5.
It's probably being set up as a loss leader so they can sell you their other products.
Someone I know who works at a hedge fund told me it was not a secret that retail order flow (trade requests from “ordinary people” on scottrade and etrade) was so misguided that, if it was allowed by the SEC, you could end up positive just by betting against it by taking the opposite position.
Maybe JPmorgan has some way of doing just that without breaking regulations.
Maybe JPmorgan has some way of doing just that without breaking regulations.
The hedge funds don't bet against it, they actually pay the large retail brokers for this order flow, ie they execute it for them, because it is non-alpha-bearing, ie generally clueless, it gives them opportunities to cross their own trading flow (ie if they are selling and retail is buying, thereby getting a trade they were going to do anyway done for no cost at the current mid-price in the market) with the rest they can aggregate it with their own flow, and since it's not alpha-bearing, they use it as inventory in their market making algos, ie they execute it passively, always on the near side of the spread, and also pick up the rebate from the exchange for being a liquidity provider.
If you have a large enough book it works. The big boys pay fees and the little guys get aggregated. All depends on what a "market order" is.
[deleted]
How does Robin Hood provide free trading?
I haven't read anything recently, but typically, the idea is you can make money through:
1. Interest from lending securities to hedge funds to short them
2. Margin maintenance fees
3. Selling order flow to trading firms
4. Other services
1. Interest from lending securities to hedge funds to short them
2. Margin maintenance fees
3. Selling order flow to trading firms
4. Other services
As the saying goes - "if it's free, you are the product". Especially in trading.
If the broker / bank is getting charged by the exchange for executing your orders (aggressive orders in the US), then one way or another it will be charged on you (+broker's cut).