4 replies to this topic

[gm_general]

In the last few days I have seen at least 3 separate ad campaigns pushing fractional share buying plans where you can put your spare change into stocks. I'm pretty sure you could do fractional share purchases before so why the big push now? I hesitate to assign an interpretation.

[Darris]

It seems to be a copy of a RobinHood feature.  Some have implied that is why TDAmeritrade and Schwab and maybe a few others started offering commission free trades on Stocks and ETFs last year to match RH.  Interactive Brokers has started a marketing campaign on fractional shares this week as well.  Everyone fighting for investor assets and maybe making some of their money based on margin interest.  Doubling the size of the liquidity pool on individual margins can certainly feed the types of frenzy we have been experiencing.  FWIW  (Note, money/CASH can stay on the sidelines while you borrow at 1-2% or less)

[flyers&divers]

We all know there is no real commission free trading. 

 

IB, the pioneer in driving down commissions over the decades due to their superior software architecture and business model was always charging only 25pct or even smaller fraction of what Scwhab, AMTD and other discount brokers were advertising as the lowest retail commissions.

Goldman is the biggest broker in terms of money in house while IB has been the biggest for years in terms of number of transactions. Now that may change.

Over the years at IB I have very often got better fills then I expected (on larger market orders in liquid markets when I was in a hurry) because their algo directed the order to a better priced counter party. This is why they have my loyalty.

 

As technology matures it starts mimicking the shenanigans that used to be done by us humans in various endeavors. Uber mimicking a smart merchant quickly adjusting prices to changes in demand etc,. On the floors with open outcry trading a skilled broker would be holding orders for a better fill and not passing on the small improvement to the client.

In Sugar Futures where I traded only my own I watched brokers playing games with orders in the opening range where the clients never got the best fills. The broker's mother in law or Swiss account opened under a different name did.

 

I have noticed lately that when I place a small limit order or single options order at IB or AMTD the orders show up in my book trader or on market depth instantly but not at my price but a tick lower then my actual bid or a tick higher then the actual limit price I wanted to sell.

This means they are doing the very same thing as what I described above in live trading, not sending the order to the market place but their own order instead at a tick better. When trading is busy one would not notice this, only when it is very quiet. They want to get it at a better price and KEEP THE DIFFERENCE. The the ebb and flow of demand and supply makes the price vibrate and makes what they do possible.

 

I really don't mind that they take me for a dollar or less (on top of the commissions) to fill an exotic order and I know why I don't get a fill even though the price reached my intended limit (of course this becomes harmful if the order never gets filled and price turns) but here is a whole generation of young people who are clueless how they are actually being fleeced and paying through the nose for their transactions. 

If two brokerage firms with the finest reputation are doing this imagine what goes on at the fly-by-night outfits?

 

The fractional share trading may have started with the dividend reinvesting schemes called DRIP.

Brokerages may consider fractional share as a loss leader, like five lemons for a dollar at the super market. It gets them into the store.

 

F&D

[Darris]

I saw today that RobinHood made over 91 million dollars selling their order book in the 1st Qtr this year.  Apparently new requirements on reporting that type of info.

[flyers&divers]

What's interesting about the RH clientele, and I have a few young friends who are trading at RH, is that they are not day traders, they don't have 25K in their accounts.

they hop from stock to stock. Some of these people may migrate back to electronic sports betting.

 

F&D