Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we’re going to be discussing why one day, all brokers will offer commission-free trading. I actually called this a couple of weeks ago. I did a Facebook Live where I said the world is flat and these are basically the three things that nobody sees coming, but this is where the world is going. The world is transitioning and it's changing and one of the things I said in there was that in the future, all brokers will be commission-free. I think Robinhood for sure was the first in this space and they’re going to be looked at historically as the leader in this space, but now, a lot of brokers are quickly transitioning to commission-free trading. In fact, just a couple of weeks ago, J.P. Morgan announced that they have their own free trading platform. And so, now, Robinhood has major competition with the likes of J.P. Morgan and I expect in the future and probably in the very near future, many brokers will start moving very quickly towards a commission-free trading platform.
The question now becomes – How will they generate their money and how will they make money? If they’re giving away all this trading for free, how do they make their money? Well, we all know that brokers don't just make money on commissions. They make money on account balances and they make money on asset-management and other products that they sell. I think that the main two categories in which brokers will make money in the future will be assets under management, so managed accounts will still be a main driver of revenue for brokers and then I think the second thing will be technology and content. The winners in this space will ultimately have the best technology and the best content. If you look at even spaces like Netflix which was the first-mover into this video streaming technology, the prices of Netflix and the prices of these other competing services that are out there have really had a damper on Netflix's ability to grow because you have every other platform now launching their own streaming service. And so, how do they differentiate themselves? They differentiate themselves by the technology that they have and by the content that they produce.
In many respects, I think that the brokerage community is going to have to make a drastic shift which they've not been really associated or accustomed to in the past and that is to be more technology-focused than they were before and to be more content and education-focused than they were before in the past. Many broker platforms have their own education space, they have their own “university”, but it’s very lackluster, it's very not thrilling, it's not produced very well and they’re going to have to really increase and make a significant investment in that space and then the people who are going to ultimately decide which broker they go with is going to be based on the technology and the offering of that brokerage. For example, somebody that offer say auto-trading through our service and commission-free is going to be better than somebody who does not offer auto-trading and commission-free. When fee is no longer the differentiator which it has been for a very long time, you’re going to start to see new brokers potentially emerge from this as really powerhouses because of their underlying content, technology and what they can do to manage your account.
I think it's an interesting space. I definitely think more brokers are going to quickly jump on this commission-free trading. It's going to be a race to the bottom and once we see everybody at commission-free, then it’ll be interesting to me to look back on this and see who actually kind of rose above that and ultimately became the winner in this space. I don’t know who that’s going to be yet. I think it may be somebody potentially completely new in this space. It could be somebody existing that has the financial backing to really make a good strong run at this. But it’ll definitely be interesting to see. If you guys enjoyed this, please let me know. Please share this with your friends because I think this is going to be an interesting topic to see evolve over time. Share it with your friends, your family, your coworkers. This is going to be an interesting podcast to review in like five or six years and see how accurate I was I guess in trying to predict the future of the brokerage industry. As always, if you guys have any questions, let me know and until next time, happy trading.
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