Review - Free Stock Trades With Zecco
Published 9/22/07 (Modified 3/22/11)
Zecco is a discount broker that's been generating a lot of buzz since they started offering free stock market trades last year as part of their very pink friendly trading platform. They currently offer 10 free market or limit trades per month, so long as you maintain $2,500 in total account equity (stocks and cash). There is no minimum balance requirement to open an account, but if you have under $2,500, trades will cost $4.50 each. There are no inactivity fees, which is quite a bonus for those who don't trade too frequently. Your securities accounts are also insured and protected against loss by the Securities Investor Protection Corporation (SIPC).
Is There A Catch With Zecco?
According to the Zecco website:
There is no catch. We can give away free trades because the cost of executing a trade has become very low. And like other brokerages, we make money on interest income and option trades. Pretty simple right?
If you're an active trader, the lure of free trades is tempting. However, keep in mind that free trades isn't everything. Zecco has been around for only a year, which is still a relatively short amount of time in the brokerage world. Questions remain such as whether they will be around for the long haul. What about customer service and trust? Can they execute timely trades and can they offer trading platform services that can compete with those offered by other brokerages?
Moving Towards a Free Trades Market
It is interesting to note that Zecco may have signaled the start of a trend towards a free trades business model. Currently, many large brokerages are starting to diversify and make a larger portion of their income through mutual funds and cash balances than they do through trading. Many brokerages are now moving into more advisory services and into banking and lending.
But don't expect customers to depart the big brokerages immediately. Larger brokerages such as Charles Schwab, Merrill Lynch, and Fidelity Investments have developed solid relationships with their customers over the years and many of the customers have come to rely on and expect a certain level of high class service from their investment brokers. These customers are not likely to move to a broker that has only been in existence for a year.
Despite that, Zecco and similar companies that offer free stock trades offer an interesting niche in the trading world. If you like to actively trade or even speculate a portion of your portfolio on the side, a free trading platform might be a very attractive alternative.
My Experience With Opening A Zecco Account and Trading
After doing my research, I decided to open a brokerage account with Zecco. The bulk of my investment money will remain with Fidelity, but I plan on taking advantage of Zecco's free trades and using it to handle my "play money". Basically I plan on using it to do a little speculating and riskier trading. But the key is that I'm only going to deposit a small sum - nothing more than $500 - $1,000.
The web based application process was quite straightforward and similar to that of most other brokers. The application was all online and did not involve any subsequent paperwork. The Zecco application has 3 parts:
- Step one requires you to register for a mandatory myZecco account, which allows you to participate on their blog and post messages. Step one only took a minute.
- Step two involves actually registering for a trading brokerage account. After submitting your online application, it may require an hour or so for the system to generate your account before you move to the next step.
- Step three requires that you fund the account. I chose to set up an external ACH bank account to transfer funds to Zecco and make trades. Keep in mind that Zecco uses two small trial deposits to verify your ownership of the bank account that you are trying to connect to Zecco. After verification, the deposited amounts are automatically withdrawn.
Zecco's trading interface is pretty basic with nothing fancy to blow you away. Their customer service is generally on par with other discount brokers. Obviously their biggest draw is the free trades so long as you can maintain the reasonable minimum balance requirement. I've made several trades without any problem. Since I'm using Zecco as my "play money" account involving small sums, it feels quite good not having to pay any commissions!
For those who want the complete and comprehensive evaluation of all that Zecco Trading has to offer, including not only its pros but also its cons, please check out my editorial review of Zecco Trading.