How We Exist
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Freetrade by Ameritrade is a virtual broker aimed at a specific niche market. This company is an iteration of the continuing evolution of e-commerce. A client must qualify for an account by being experienced in using a discount broker and using the Internet, among other items.
For these experienced clients, we offer this service with limited services and limited costs of operation. Every cost not necessary for executing stock trades has been eliminated.
We have reduced marketing and advertising costs to little or nothing. This company must grow by word of mouth, or referral. Hopefully, the Internet, with its new communication paradigm, will be able to funnel enough new accounts to make the company grow. If you qualify for a new account and do indeed use the service, we need you to tell others. If this referral system does not work and Freetrade does not open many new accounts, the company will not be successful.
The second way we have reduced costs is by using the Internet for all communications with clients. E-mail needs to be used for all communications, including statements. We do not have a telephone or office location for client services. We also do not have people assigned to open mail. To fund an account, you must wire funds or transfer assets, as explained in our account opening process. Once your account has been funded, you will also have access to electronic funds transfer for deposits and withdrawals. We are not only the Ultimate Discount Broker, but we are also the Ultimate Electronic Broker. If you would not be happy or comfortable with this type of operation, then Freetrade is not the broker for you.
All trades and client services will be executed by and through the Internet. Clients will not be able to reach Freetrade via telephone. E-mails for Client Services will be responded to quickly, and confirmation of trades will be reported immediately. In the event that the primary trading site is unavailable, we have a backup trading site for regular trading sessions that will handle your orders. The site will be available through normal log on procedures, with a notice to you of its implementation.
We don't make a market in any stock. This is also true of Ameritrade Holding Corporation and its other subsidiaries. All orders are routed to the market for execution. We report every phase of the order routing to you. A time stamp of the order receipt, the time the order was sent to the market, and the time the order was reported back as executed, will be shown to you on the order status screen.
However, reducing costs alone will not make us successful. We must also generate revenues, and we do that in three primary ways.
The traditional interest income system: loaning clients' funds against securities in a margin account.
Commissions account for a portion of our revenue. We charge equity trade commissions based upon the number of trades placed each month. The first 20 trades are commission-free, whereas additional trades are charged a small commission.
Market Makers and Specialists that execute trades may pay us for the order flow. This system of payment got started because execution facilities were not efficient, and the size of the market had gotten larger. This payment was instrumental in helping us reduce costs to our clients. In fact, without it, commissions would not have come as low as they are. However, as the markets have become more efficient and competitive, this revenue source has been reduced dramatically. Decimalization has narrowed the spreads on quotes and further reduced this revenue source.
Hopefully, with our reduced costs of operations and our limited revenue sources, we will be able to make a profit and survive. With your endorsement and help we may be able to thrive.
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