Before I start praising Zecco for it’s $0 trades, I have a few remarks to make about their customer service. My first experience with Zecco was late last year (around early December) when I first applied for an account following the lure of free trades. The enthusiasm didn’t last very long (partly due to the $2500 minimum opening balance), and although Zecco opened an account in my name, it was never enabled for trading (it was put on “hold” as one of their emails later explained).
Recently, it dropped the minimum account opening balance requirement to $0 ~ so I thought of giving it another shot. To avoid messing with the earlier aborted account, I opened a new sub-account (this is subject to special conditions - read this comment by Chuck below, and my reply to it. Following their terms of service, it’s not a good idea to open another account if you have already one that has been cleared for trading). This account was again delayed (due to some complications) - but I was informed about the problem only after a week.
Towards solving the problem, I emailed them the necessary documents - and didn’t get any acknowledgment for yet another week. Meanwhile, to avoid wasting more time, I proceeded to connect my checking account to Zecco via ACH, in the hopes that my paper work would be cleared by the time the money is transfered. Surprisingly, the ACH procedure went smoothly and the funds were in my Zecco account in about 6 working days - but there was still no word about the status of the paperwork.
Finally, as my patience was wearing out, Zecco sent an email informing me that they are still “processing” my documents and it would take a few more days to get things started. Never heard from them after that.
Yesterday, just for the sake of it, I signed in to Zecco to see if things have been cleared and sure enough it didn’t show any outstanding documents ~ finally, I was ready to start some free trading. Goes without saying that I didn’t receive any notification about my account being cleared for trading.
The whole account opening procedure took almost a month.
Oh well…. so much for $0 trades.
Fun fact: Zecco doesn’t have a damn toll free number!
In summary, their customer service needs a very serious overhaul. Hopefully they will work on it as they mature.
- My First Zecco Trades
With that rant out of the way, let’s discuss the trades.
Here is a screenshot of the first trades I placed through Zecco late yesterday night (rather very early today morning). You can see the obvious hesitation (the canceled trade). First, I went for iShares MSCI Australia Index (EWA) on account of it’s strong historical performance and it’s 5-star rating from Morningstar (as displayed on MSN MoneyCentral).
However, later I read some articles on The Motley Fool about emerging markets and decided to cancel the EWA order and go with the Vanguard Emerging Market ETF (VWO). Honestly, I don’t have any technical reason to explain why I did that - I just got swayed by this article on the Fool about VWO.
Update: the trades have been successfully executed - I was a bit worried in that department, given the propensity of things to go wrong with my Zecco experience so far.
Hopefully, I will have a good start here.
Any opinions on these choices?
By the way, you must have noticed that I am only talking in terms of ETFs for now. I don’t think I am at a position to start messing with individual stocks yet. May be sometime later this year.
- Some Thoughts on Commission Free Trades
Although their customer service sucks at present, I have to give credit to Zecco for thinking out of the box with respect to commission free trades. I think the idea is awesome.
Here are a few reasons why I think it’s awesome:
- Commission free trading makes investing a whole lot easier for occasional small-time investors like me. People can actually think about regularly putting their weekly small savings into the stock market without having to worry about per-trade fees. In other words, it will encourage dollar-cost averaging - which is a good thing for a lot of people (I am thinking students) who don’t have large amounts to invest.
- On similar lines, commission free trades will cause investors to look at ETFs from a totally different point of view (again, think dollar-cost averaging for ETFs). For example, widely accepted statements like the following will cease to have relevance.
Exchange-traded funds (ETFs), with their often-minuscule expense ratios, would seem to be the perfect vehicles for dollar-cost averaging, but initial appearances can be deceiving. Source: Investopedia
Exchange-traded funds have many strengths, but individual investors should be wary of investing in small amounts. Transaction fees cannot be avoided with ETFs as they can by going directly to a traditional no-load mutual fund, because ETFs must be bought and sold like a stock through a brokerage house. For substantial purchases, this transaction fee is an insignificant percentage, but for small purchases it becomes unreasonable. Source: Yahoo Finance
- Personally, free trading will give me the long awaited opportunity to experiment with stocks. For example, without putting in too much money, I want to try out a list like this one on MSN: Top 10 stocks and tweak it over time. Such a thing wouldn’t be affordable in the presence of significant transaction (and/or fixed) fees.
I am not sure how long Zecco can run with it’s promise of $0 trades, but as long as it continues, I am hoping that Zecco’s (hopefully successful) model will encourage other popular online brokerage firms towards commission free trading in time to come.
- Useful resources:
Zecco Review by Jonathan @ My Money Blog.
First Trading Experience with Zecco by Sun @ The Sun’s Financial Diary.