Some of Nasdaq's largest market makers are reaping gains from the latest twist in cut-throat online retail brokerage – Internet stock trades executed for no commissions.
Knight Trading Group and Schwab Capital Markets, for instance, are executing stock orders for customers of The Financial Cafe.Com, confirmed Frank J. Mansour, president of the San Francisco-based firm, one of the new breed of online broker dealers waiving commissions.
The benefit flows both ways. San Francisco-based Financial Cafe and an Ameritrade affiliate, Freetrade.com, accept payment for order flow from dealers. (Ameritrade was an early investor and order-sending account for Knight.)
The new online brokers do not exactly duplicate each other. The Financial Cafe and Freetrade waive commissions on market orders, but charge for limit orders. They also finance margin accounts.
FreeTradez.com, in Grand Blanc, Mich., is more unconventional, saying it will charge no commissions on market and limit orders. (It claims that, if market orders are not executed within 45 seconds, customers will receive a $5 rebate.)
To make money, FreeTradez will accept paid advertising. In another money-making plan, the firm will offer a Visa credit card which racks up points for stock transactions. These points could then be redeemed for shares in publicly-traded companies.
FreeTradez describes itself as the "true investor's advocate," taking a tough, if not controversial, stand on payment for order flow. "This practice is against the best interests of investors," its web site states, "but is a widespread industry practice."
Mansour of Financial Cafe is undeterred. "What separates us from the rest [of the free trade online services]," he said, "is the combination of high quality service and low prices. Every person that opens an account with us gets a phone call from our customer care staff inquiring whether they need any additional help."
