Five or Six years back, people are noticing there are quite a few of Fintech companies started to offer no/very low commission stock/ETF trading.

I am not talk about the business model to make money on the pricing (difference between market maker price and the real price you get from App). I believe Robinhood and similar company had trouble with that model (lawsuits, SEC fines and so on).

I do not think I can cover all the tricks they are using. but I would like to show at least one. Here is a computing model that many firms use to cut cost and provide end user good experience, such as best market maker price.

Let me show the workflow first:

  1. Usually, Fintech companies execute your order in a timed window, such as 10AM EST, 1PM EST and 3PM EST. They call it “Trading Window”. Lets say, there are 100 users want 1 share of AMZN each. you may not get best price for purchasing just 1 share. so lets group it together.
  2. Once all the grouped market order is ready to execute, then send it to Market Maker as one big buy/sell order. FYI, it also cut cost to use FIX trading protocol.
  3. Once the order fulfilled, it is time to split the big chunk into small pie and assign to each end user.
  4. Repeat the process again on different trading Window.

Suppose you sign up an start up fintech to use DCA approach, each paycheck invest $500 with a diversified portfolio. if you trade individually, you may get just a small fraction for each Stock/Ticker in your portfolio. But this method can significantly reduce the overhead to reach out Market Maker. it can pool all the $500 cash together and figure out a trade plan, right?

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