The big news today in stock trading is the $365 million raise by Robinhood that increases the company’s valuation to more than $5 billion. In less than five years, Robinhood’s commission free trading platform has attracted more than 4 million users, managed more than $150 billion in transactions and saved users more than $1 billion in fees.
What this explosive growth from Robinhood really means is that the days of charging commissions on stock trades is quickly going to become a relic of the past. And while Robinhood’s success is a milepost on the route to the end of commissions, we believe it is actually the rapid growth of algo trading that will deal the death blow to trading commissions.
Today, we are seeing unprecedented growth in algo trading on the institutional and, more importantly, the individual level.
- Financial regulators in India reported last month that algo trading has grown at least 50 percent in less than a decade.
- Bloomberg reported last week that automated trades now constitute about 80 percent of activity on U.S. exchanges.
The increase in the volume of algo trading must correlate to an increase in frequency of trading. And this surge in the frequency of trading can be limited by out-of-date commissions on individual trades. Commissions are becoming an impediment to trading progress because they conform to a method of trading that has already faded into the past.
The private sector is already responding to this need and demand for commission free trading. Robinhood is the most well known example. Our new startup Alpaca will soon allow commission free algo trading.
Soon we believe financial regulators will need to get involved and require or regulate trading in a way that more appropriately accommodates automated and algo trading.
Let’s return to India again.
Last month, the country’s leading financial regulator, Sebi, announced it was seeking reforms on leading financial exchanges that would support algo trading. Sebi says it may ask exchanges to offer some services for free to algo traders, including a data fee for testing algos and reduced costs for colocation facilities within the exchanges themselves.
And in London…
Algo traders are pressing the UK to stick closely to the European Union standards on algo trading as the country backs out of Brexit. New financial rules that have circulated unofficially in London show that UK regulator may favor a requirement that any changes to algo trading strategies be approved by regulators before being implemented, a burden algo traders have branded as ridiculous.
At any rate, it is clear that around the globe algo trading is reshaping the rules, the fees and the markets.
And it won’t be long before the algo trading wave forces the truly transformational end to trading commissions everywhere. Push this movement forward and sign up for commission free algo trading!