Do you think it's a good idea for a website that charges just $1 commission on trading orders?

Question

So...my idea is to create a website that charges just $1 commission on CFDs and other instruments - while the competition currently charges MUCH higher. Like...cfds, Options on gold, CDS, Bonds, etc. I tend to avoid the idea for a forex website - since forex has a terrible reputation these days and when it comes to stocks - there's a huge regulation by SEC which i perhaps won't be able to pass...same goes for futures. But...OTC options, cfds, spread betting - all seem to be very popular especially in certain countries. Other than the super low fixed commission of $1 - i plan to make it so every OTC order will be matched against another customer - that is...like ecn, dma - so my clients will be aware that i am not trading against them and won't scam them if they happen to win a lot. Do you think these 2 ideas: $1 commission and exchange based trading are enough to gain a customer? Or people will always stick to well known names like barclays, c.schwab, etc no matter how high their commissions are...and so on?

10x!

Answer 1

That's a good idea, but there are also expenses associated with trading. Most brokers have to pay a per share charge to the exchange for every transaction, perhaps it is 0.5 cents. If your client trades 100 shares of a stock that's not too big of a deal for you. Your client pays the $1.00 commission, you pay .5 cents X 100 shares = 50 cents, so you net $0.50 for yourself.



Of course you have a problem if one of your bigger clients decides to trade 10,000 shares.



10,000 X $50 in exchange fees you have to pay.



minus the $1 commission.



Do some research, I'm not an expert in brokerage accounts, there are different fees and different ways that exchanges charge for services, but this is probably the reason why few brokerage companies charge less than $5 for trades.

Answer 2

You would still have to pay for a seat at the exchanges, and subscriptions to the electronic exchanges. Plus you would still have fees and taxes per trade to the exchanges. If you had enough volume you could settle some of the trades internally amongst your clients and by participating in alternate low cost exchanges but this would be with much lower liquidity so you would have to have some means of assuring your clients that the prices are as good as they would get on the exchanges. What might be possible is if you offer the option of a low cost trade to your clients where the bid or asks are posted internally and with alternate pools of liquidity instead of the major exchanges while still offering the major exchanges at a commission that covers the costs of the traditional exchanges. That way, you can at least advertise low cost trades and let your clients decide if it's worth the lower liquidity levels. In truth, all the major brokers already match trades internally and in cooperation with other major brokers through alternate pools of liquidity so you won't be able to undercut them. In today's age of viral networks, it is possible to set up a way for regular consumers to have no cost trades but there's no way to profit from it or control it. Plus it would take a lot before such efforts had the liquidity to compete with the traditional exchanges. Still as Craigslist and eBay have shown, there may be room for one to establish a brand. It's a catch 22, in order to have the liquidity to compete with the traditional markets, you need to have the brand, in order to establish the brand, you need to have the liquidity. If you have a lot of startup money, you could provide the liquidity by doing a lot of OTC market making but that's pretty tricky to do and the capital requirements would be huge. Maybe if you start with a narrow market focus by market making just a few select popular stocks. To a certain extent, the sport betting exchanges in the UK have been trying to sort've break into the financial sectors by allowing wagers to be placed on financial indicators. Basically allowing for a derivative trading in wagers similar to CFD's, but if you've ever been to Betfair and Betdaq, you'll see that their financial markets are ghost towns for liquidity.

Answer 3

You can't just set up a web site and allow people to trade securities. Forget about whether or not it's a viable business model and look at the legality of it.

Answer 4

You will probably lose money as a $1 dollar commission will probably not be enough money to cover your expenses.

Answer 5

What you seek to create is not just a "website." It's a BROKERAGE. Business model aside, do you realize what's involved in doing that?

Answer 6

Your on the right track, It's a good idea and can suceed, couple things to remember/tips



Have a good name. You don't want your website to sound like a scam/kid's gaming site. Make it sound proffesional.



Also have references/show your privacy certificates and explain in a FAQ (frequently asked questions) how the clients money is safe and it's a good choice to invest with you.



Good luck with your idea!