TradeKing Looked from Inside: CEO Don Montanaro Introduces the Discount Broker
TradeKing is my latest broker that I got last December when I switched from Firstrade to TradeKing. The main reason for me to decide to open another brokerage account was that TradeKing charges less commission per trade. Since then, I have been using TradeKing quite regularly and found that the discount broker, while cheap on commissions, is full of features that make it easy for small investors to trade online, as I mentioned in my TradeKing review post. In addition to their low-cost trades, I also like their customer service through my own experience. I used their Live Chat once to setup dividend reinvestment and found it was very convenient. When I posted my doubt on whether TradeKing uses delayed quotes last month, I got an immediate response. I talked about many brokers on this blog, but not everyone takes my complain seriously. And TradeKing has been very active in acquiring new customers by offering incentives when opening new accounts (their latest offer of $50 signup bonus is still available).
Recently, I had an opportunity to have an interview with TradeKing CEO Don Montanaro. The purpose of the interview is to gain some insights on their products and their services that we may not have as a customer. If you want to know more about TradeKing, then here’s your chance. Let me know if you have other questions after going through the interview.
Sun: Could you please give us a quick introduction of TradeKing and its main products?
Don: Online discount broker TradeKing was founded in December, 2005. When we founded the business, we recognized a number of trends that helped shape our business model and philosophy. First, we saw that massive consolidation within the online brokerage industry had left many online investors feeling underserved and squeezed out. Second, traditional brokerages were giving higher net worth investors an unfair advantage in terms of pricing, services and tools. Lastly, TradeKing recognized that the recent growth in online investing was being fueled by three converging market forces:
- The Baby Boomers, now coming into their inheritance, who are self directed, savvy online shoppers and researchers, and who understand how the markets work;
- The evolution of broadband, which has raised the confidence and comfort of investors in trading online;
- Growing interest in Options as a way for traders to round out their investment strategies.
Enter TradeKing. Our goal was to shake up the industry with lower fees and higher quality tools, designed to level the playing field, giving all investors the same opportunity to win.
This combination of high-touch service and innovative tools at a single low price point has helped TradeKing attract more than 100,000 accounts in just two years. It’s also helped us achieve some pretty impressive third-party kudos from clients, industry analysts and in side-by-side industry rankings in Barron’s and SmartMoney against established players such as TD Ameritrade, e*Trade, Charles Schwab, Fidelity and Bank of America.
Sun: TradeKing was ranked No. 1 Discount Broker by SmartMoney Magazine for two consecutive years in 2006 and 2007. Where is the feature that TradeKing has but others don’t? What makes TradeKing stand out from the crowd?
Don: We’re incredibly proud and gratified to have been selected as SmartMoney magazine’s number one discount broker for two consecutive years. What makes us different is the value we deliver for the online investor.
For example, most people automatically expect a discount broker to have a barebones offering and so-so service. We turn those expectations on their head by providing incredibly high-touch service and a list of advanced trading tools for which people expect to pay a lot more. SmartMoney and other publications have consistently recognized TradeKing for these things, particularly our service, noting that we maintain some of the fastest response times in the business, live chat, 800# accessibility and extensive education programming.
The SmartMoney editors also recognized TradeKing for our groundbreaking TradeKing Community, the very first online community within a brokerage firm. Since our inception, we have been committed to being at the forefront of applying new social networking techniques to further investors’ knowledge and trading savvy.
Barron’s also gave TradeKing a five-star rating and ranked TradeKing second (out of 15 Web-based brokers) for both “Usability” and “Cost.” The Barron’s editors specifically recognized TradeKing for its “great tools,” calling out the site’s innovative Profit + Loss Calculator, check-box format for building multi-leg options strategies, new technical analysis offerings and extensive educational resources. So while value can be measured a few different ways, we believe TradeKing has the investor covered.
Sun: As a small investor, I am concerned about how much it’s going to cost me when trading stocks. TradeKing’s commission, $4.95/trade, isn’t the lowest (Sogo and Zecco charge less). When I choose a broker, I always look at the commission first. How does TradeKing compete with other brokers with lower commissions?
Don: TradeKing has created a solid business model based on offering clients one low cost ($4.95) per trade, and this has remained our price since day one. We charge the same rates to everyone – beginner or expert, large account or small, regardless of how often you trade with us, for both market and limit orders, with no hidden fees. We think that’s fair and simple, with no surprises or extra mumbo-jumbo.
In combination with these low costs, TradeKing offers a sophisticated set of online trading tools, educational resources and superior customer service. We believe this is a killer combination for our clients.
Some other brokerage firms offset their zero-cost model by selling advertising on their sites. We believe this approach is not in the best interest of investors, who want to focus on their investments when they are trading and not be interrupted by pop-up advertisements. The industry has also seen some of these zero-cost brokerages amend their policies in recent months to begin charging clients after a certain number of free trades. This raises the question of whether their business model was sustainable in the first place.
Sun: I have been using TradeKing for less than a year and noticed that some new services have rolled out recently, like AutoTrade and Maxit Tax Manager. On one hand I want the website to be simple, on the other hand I also want the service to be useful. How does TradeKing identify what kinds of new services to offer its customers? Are there any demands for these new services?
Don: TradeKing is focused on adding new tools to its site that make sense and help to better ensure our clients’ trading success. For instance, we recently made Fixed Return Options (FROs) available to our clients. These binary options are a simpler way for investors to begin trading options without the confusing language and calculations typically associated with the options market. The FRO’s unique “all or nothing” structure provides a straight-forward approach to options with a maximum risk of $100 per FRO contract. I’m proud to have played a significant role in the initial conception and subsequent development of the product.
Feedback we receive via the TradeKing Community is an important way in which in we identify those new features and functionality that are of most interest to our clients. TradeKing also conducts a quarterly client survey, as part of which we query customers as to their wish list of new features and functions. We are firmly opposed to adding functionality simply to promote new bells and whistles. Each tool or service we add to the TradeKing site has been vetted by the TradeKing team, with a combined 100+ years in the brokerage industry and supported by feedback from our clients.
Sun: I also use Scotttrade a lot and like their ScottradeELITE, which is a stand alone trading platform. It makes trading easier. Does TradeKing plan to offer similar, non-web based platform?
Don: Not at this time. We are focused on continuing to improve upon our web-based platform. With some of the new web technologies that are available today, we believe in the months to come that the lines between software-based or downloadable trading applications and web-based services will continue to blur.
Sun: Tell us about TradeKing Community. Nowadays, it looks like every broker has its own community. What role does it play and how can investors benefit from sharing with others?
Don: Actually, when TradeKing launched in 2005, no other broker dealer had an online community, so we were the first to include social networking as part of our customer offering right from the start. It’s true that imitation is the sincerest form of flattery.
At that time, we saw a retail investing landscape full of confusing, double-speak pricing, commoditized tools and poor customer service. We also saw a sector in which, despite the huge boom among online brokers, no-one had yet found a way to use the Internet to solve some long-standing problems for individual investors: isolation, uncertainty, difficulties in learning and connecting with other traders. Swapping stock picks with the guy next to you on the golf course might be fun, but it doesn’t cut it for reliable information when you’re a serious active investor, already knowledgeable but looking to advance your skills. Also, who knows if that golfing guy ever makes money on his own predictions? In the offline world, it’s not only hard to find like-minded investors, it’s near-to-impossible to get any trustworthy sense of their qualification to advise you.
We realized that providing our customers with a suite of Web 2.0 tools “baked in” in the form of the TradeKing Community would allow them to connect with other investors to gain knowledge. The TradeKing Community provides every account holder his/her own blog, micro-blogging capabilities called Trade Notes, a profile page with various dynamic ways to connect with other like-minded investors, and the first-of-its-kind feature called Certified Trades, which enables account holders (if they wish) to publish their actual trades in their TradeKing account for all to see. This innovation lets everyone in the TradeKing Community compare what a trader blogs about with how he or she is trading, considerably reducing the opportunity for disingenuous bloggers looking to manipulate the market.
In addition, as the Community evolved, TradeKing recognized another opportunity to conduct even deeper education and public mentoring by mixing in trading experts in the form of its new “All-Star” trade blog. This blog features a panel of five renowned options and equity trading professionals focused on breaking down Community members’ trades and offering tips to benefit the whole Community of investors. It’s a unique online experience in that it combines real experts, addressing specific and actual trading activity from real investors – all in a regulated brokerage environment. Today, we welcome both established and newcomer brokerages that are following our lead in this space. TradeKing has proven out the concept and social networking around trading is here to stay.
Sun: The stock market has been quite volatile recently. Do you see any increased activities from TradeKing customers? Are they buying or are they selling? What’s your advice to investors during market downturn?
Don: The TradeKing Community has given us a unique “front row seat” on investor sentiment during this unprecedented time in the market. In my view, occasions like this recent market volatility make the TradeKing Community an even more valuable asset for investors wishing to “compare notes” with their like-minded peers.
TradeKing has had record numbers of new account acquisitions in these past few weeks and our trading activity has likewise been brisk and record-setting. While some investors are selling positions, we’re seeing few, if any, exit the market completely. We’re also seeing a number of investors hunting for bargains or the next big movers, particularly in the banking sector.
During this market downturn, another trend we’re seeing is investors seeking to diversify their trading strategies through options. While TradeKing doesn’t actively provide trading advice to clients, we do encourage them to consider these alternative trading strategies as a way to protect themselves from risk. TradeKing has a number of educational resources on our site for investors of all levels wishing to learn more about options trading. We’ve also written The Options Playbook as a common sense guide for investors seeking to leverage options as part of their portfolio. This book is available to TradeKing clients free of charge and can also be purchased on Amazon.com.
Sun: People like incentives, even when getting a brokerage account. Recently, TradeKing had this National Friendship Day promotion. Is offering incentives such as referral bonus an effective way to acquire new customers? Any plan to offer other incentives in the future?
Don: TradeKing has found that referrals from satisfied clients are one of our most effective ways to acquire new clients. We are currently running a promotion for people who transfer their accounts to us from another broker and will reimburse any transfer fees up to $150. This offer is available on the TradeKing home page. We will continue to explore other ways to attract new investors to TradeKing while maintaining our laser focus on providing our existing clients with the best possible trading experience.
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