Zecco

» see zecco.com as it lived, on the wayback machine

~ the obituary ~

A US broker-dealer in 2006 opened accounts for people with an American address and a social security number, which is not a wall you climb from Turkey with a TTNet line and some curiosity. So Zecco is a product I read about rather than one I could have signed up to, and what made it worth reading about was a number: forty free trades a month, for anyone, with no minimum balance.

The name was meant to be heard as "zero commissions". Jeroen Veth set the company up in February 2006, the site opened in July as a community for people who talked about their positions, and the trading engine went live on 9 October. Everybody else in the discount brokerage business was charging somewhere between 7 and 13 dollars a trade at the time, and the cheap end of the market had been sitting there for years without moving. Zecco went straight to zero and said the website's advertising would cover it.

Retail investors did what retail investors do with a free offer. They opened accounts with small balances in them and then they traded. Every one of those trades cost Zecco money to clear whether or not the account holder ever borrowed a dollar on margin, and the offer was very good at attracting people who never would.

~ the case file ~

~ the free lunch ~

The economics of a brokerage are not really in the commission. They are in margin lending and in the interest on cash sitting idle, plus whatever the firm is paid for routing your order somewhere. A zero-commission broker is betting that enough of its free-trade customers will also borrow money or leave a balance sitting. In 2006 that bet had never been tried at retail scale, and Zecco was the firm that tried it.

The advertising part of the plan aged badly almost immediately. Selling banner space on a brokerage website to pay for clearing costs assumed an ad market that was about to have the worst two years of its life.

~ the conditions arrive ~

By October 2007 the free trades came with a 2,500 dollar minimum balance and the allowance had been cut from forty a month to ten. On 1 March 2009 the bar went to 25,000 dollars in assets, with an alternative route for anyone placing at least 25 trades a month. TechCrunch ran the obvious headline that February about the free trading model turning out not to be such a good idea, three years before the company actually ended.

The last step came on 30 March 2011, when Zecco moved to 4.95 a trade for equities and 4.95 plus 65 cents a contract for options. There were no free trades left in the product at all, which meant the company was now a mid-priced discount broker with a name that promised zero and a customer base that had joined for free.

~ what tradeking kept ~

TradeKing and Zecco announced their merger on 15 May 2012 and closed it on 1 August. The two firms went under a new holding company, TradeKing Group, with more than 500,000 combined accounts and several billion dollars of customer assets. TradeKing was named as the permanent brand from the start. Both websites ran on for a while in parallel before the Zecco side was folded in and the name came off.

TradeKing did not last much longer as a name either. Ally Financial bought it in 2016 and turned it into Ally Invest. The idea Zecco had gone bankrupt on arrived anyway, once Robinhood had a business model that paid for it, and by October 2019 every large US broker had cut its stock commission to zero. Being early is indistinguishable from being wrong if you run out of money in between.

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