Global internet brokerage development is represented in the United States. In recent years, with industry competition has intensified, a variety of innovative business models have emerged in the US internet brokerage industry. Innovation of internet securities firms includes innovation in service models, in product and in marketing channels. There are three types of internet brokerage business models: zero-commission securities firms, fractional securities firms, and social securities firms. Each has distinct operational models, business characteristics and profit models.
Zero-commission securities firms
Commission free brokerage is a type of online discount brokerage that provides free securities trading services to investors. As internet development has driven down commissions, these securities companies do not charge transaction fees, rather their earnings depend on interest income, subscription service fees and payment for order flow. How to quickly grow and achieve stable profits is the key for these firms.
For investors, "zero-commission services" cut the transaction costs of buying and selling stocks and ETFs. It is very appealing model for investors with frequent transactions and small investment scale. It is a low-cost learning method for new investors in the market. However, due to the profit model of zero-fee brokerages, the incentive mechanisms may prevent investors from achieving the "best execution" of orders and may damage investor interests.
Fractional securities firms
Fractional share brokerage refers to brokers that provides clients with fractional stock splitting services. In other words, “fractional shares” allows clients to trade less than one share. Usually this kind of broker also provides ETF and other mutual fund services.
| The advantages of the fractional share brokerage model |
The disadvantages of fractional share brokerage model |
| Lower investment threshold and increase the investment opportunities |
Limited choice of securities |
| More flexibility and diversity |
Transactions cannot be conducted in real time |
| Makes full use of capital and improves investment efficiency |
Stock voting rights are restricted |
| Friendly to new investors |
| Compounds interest |
Social brokerage
With the development of Internet finance, the integration of socialization and the brokerage industry has spawned a new brokerage model: the "social brokerage". Social brokerages provide a social investment platform for investors to exchange views, share market information and portfolio strategy, and to provide general support for users on the platform. The platform uses Copy Trading or Mirror Trading technology tracking to replicate professional investors trade strategy and complete the deal directly on the platform. The combination of online social platforms and the financial industry allows novice investors and experienced professional investors real-time online communication, and helps new investors to understand and even simulate trading different asset classes, such as stocks, futures, crypto currency, digital currency and so on.
Online investment social platforms increase financial inclusion, reduces service costs, and improve customer service. For individual investors, the social investment platform can help them improve their personal investing capabilities. The emergence of social communication platforms breaks down the information barriers between professional and non-professional investors, makes information dissemination more efficient and reduces information asymmetry. Instead of always relying on a single source of information, investors can tap into different individual or collective intelligence. In addition, such a business model integrates users' collective wisdom, and by allowing the "survival of the fittest", can eliminate inappropriate investment methods.
In developing innovative brokerage models, it is worth paying attention to the:
Avoiding gimmicks and improving the solid flow of investor service.
Increase revenue and reduce expenditure to find a reasonable profit model.
Compounding multiple innovative business models.
In the current domestic market, given supervision and other practical issues, the zero-commission model is subject to the stricter supervision, which makes it difficult to implement in China. The development of social investment models has begun to take shape and most of the emerging investment social platforms are cooperating with established securities firms for win-win results. The stock splitting service lacks demand incentive in the A-share market in China, so stock splitting service of US stock investment may remain an idea for reference.
