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You know, there was a article in the WSJ last week on this subject. If I
understand this correctly, the online clearing firms send the order to a
executing broker to be filled. Prior to 1-1-97 ( I think) the market makers
(executing brokers) were allowed to trade both for themselves and fill
customer orders. Since 1-1-97 you can do one or the other but not both.
Obviously, there was a bunch of $ to be made filling customer orders plus
make the spread. In those days, the executing broker would pay a rebate of
somthing like $8/trade just for the order. Kind of like a FCM paying a IB
for the order flow (as opposed to charging a commission).
With the order rebates, the online firms were able to come up with the <$10
commissions.
Since 1-1-97, things have changed. According to WSJ the rebate is less than
$2 now. With the explosive growth of online trading, the online firms have
had to invest huge $ in technology and there is a big squeeze in the profit
margins (like almost 50% less per trade).
The WSJ surmized that there will be a big consolidation in the online stock
clearing firms, like down to 3 vs 50+ today.
Not my opinion, but the article suggested that the days of the $8 stock
trade are numbered.
Kevin
>> Is their an online clearing house that charges less than $8 per trade that
>> was they can make a profit.
>>
>> I can't imagine Etrade those after recieving an order placing a call with
>> their broker and he places the order on the floor.
>>
>> Thanks in advance
>>
>> Bryant
>
>First of all, ETrade charges $15-20, Datek charges $10. They send the orders
>with computers. Why on earth would you think they call someone on the phone?
>They do something like 20,000+ transactions every day!
>
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