Have you heard the saying, “if you’re not paying for the product, you are the product?” The last two weeks have shed light on the zero commission model and where everyday investors like us fit in.
The issue at heart is what’s called PFOF or Payment for Order Flow, a practice already banned in places like the UK and Canada. It’s where brokerage firms are compensated to route their customer’s trading orders to certain market makers to execute the trades rather than directly to exchanges.
Because brokers are compensated by market makers, it’s not always clear that the customer is getting the best execution. And that is what creates a potential conflict of interest between the brokerage and the customer. For some brokerages, this conflict of interest is massive based on how much they earn via PFOF.
Other brokers offering no commission fees compensated by PFOF are rethinking their business models. In fact, Public, a free investment app, announced this week they will end the practice and shift to optional tipping instead...
“Trades will remain commission-free and tipping is entirely optional. Members of the Public.com community can freely decide if they’d like to leave a tip to help pay for the cost of executing their trades. The reality is that there is no such thing as free trades. Transparency is a core pillar of building trust, and we think it's important that we live up to our name."
So what does Public offer?
🧑🤝🧑 Social investing & sharing. Follow friends and subject matter experts. Opt in to see what others invest in, ask questions, and learn about companies from people you trust. Choose and invest in themes you believe in.
🛠️ Tools for long-term investors, such as safety labels for riskier investments and long-term portfolios. Public does not allow day-trading and they do not offer sophisticated trading instruments like margin accounts.
🍕 Fractional shares. Public slices stocks up into tiny bits, so anyone can own a piece of the companies they believe in.
Sound intriguing? Learn more on Public.com. They are offering you $10 in your Public account with a deposit of $1 or more.