Internet trading: US broker now offering service free
e.-It won't cost a cent to unload your SHVA
WEDNESDAY JANUARY 8 1997
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By Nicholas Denton in London
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US equities can now be traded for free on the Internet. A small Florida broker has begun waiving commission for investors in a move that demonstrates the efficiency of electronic securities trading and highlights the growing threat to traditional brokers.
The move by Empire Financial Group, a retail broker with 24 employees, undercuts the $9 per transaction charged by the cheapest of its rivals on the Internet and the 1 or 2 per cent commission typically charged by mainstream brokers.
Empire has imposed some conditions: clients must have a balance of at least $10,000 and funds sufficient for the deal, and must buy at least 1,000 shares worth at least $5,000 to escape commission.
By requiring clients be in credit, Empire reduces the clerical costs of settling their accounts. The company expects to achieve further savings by providing confirmation of transactions over the Internet rather than by post.
Empire says only about 12 per cent of current transactions would qualify for the exemption, but it expects to generate revenues by selling mutual funds and managing money for clients attracted by its offer of free share trading.
"Equity trading is going to be a loss-leader in the future," said Mr Kevin Gagne, president of Empire. "That is where things are going. Instead of playing catch-up at $9 a trade, I decided: let's have the others chase us."
Empire, a seven-year-old company with 10,000 customers, is a new and little-known entrant into Internet broking, and the viability of its business model is unproven. But its initiative highlights the growing impact of information technology on stockbroking.
E*Trade Group, the largest online discount brokerage, has reduced commission to a flat $14.95 for purchases or sales of 5,000 shares or fewer. Datek Securities undercut that with commission of $9.99 per 5,000 shares transacted.
Executives at "full-service" brokers, which both fulfil orders and give advice, warn that unsophisticated investors may be lured by the ease of online broking into making rash investments.
Empire Financial Group |
