One of the more interesting business models of the internet age is that of freetrade.com. Freetrade.com is an internet brokerage firm. Nothing new there. What is new is the fact that they charge no commissions.

Huh?

That's right, no commissions. In the land of free enterprise (that's the U.S. of A., not Canada, in case you were wondering) they have a business model that generates no revenues from their basic service. How does that work?

First of all, they cut their costs to the bone. There's no advertising (which may be why you haven't heard of them), you must place all trades by internet or by automated telephone system. There are no attendants to baby you along and answer all your questions. Fund transfers occur electronically only, not by mail. All communications occur by email.

In return you get (from the freetrade.com website):

20 free equity commission trades EACH MONTH 

Includes market, limit, stop, short sells, odd-lot, and OTCBB orders 

No per share charge 

No maintenance fee 

Over-The-Counter/Bulletin Board/Pink Sheet Transactions 

Extended Hours Trading 

Investment tools 

Real-time processing 

I guess it didn't work well enough for them as there's now a notation on their site that they are not taking any new accounts. Or else they're overwhelmed by the demand and can't keep up with the new account opening processes. Either way, they are now referring clients over to their sister site ameritradeizone.com - where your trades carry a $5 commission.

I guess freetrade.com didn't work quite as well as they initially thought. It seems that $5 per trade is the "bare bones" minimum to make a profit.

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