The Trades Will Be Free Now

Back in the olden days, the way stockbrokers worked is that you would walk into your broker’s office, and he’d offer you a cigar, and you’d chat about whether this Lindbergh fella was gonna make it to Paris, and then you’d tell him to buy you 100 shares of Consolidated Amalgamators, and he’d write the order on a ticket and hand it to his errand boy, and the errand boy would run across the city to the stock exchange where he’d hand it to the floor broker, and the floor broker would jump up from the shoeshine stand and push his way to the center of a big crowd and give a complex series of hand signals to a specialist indicating that he wanted to buy the stock for you. I mean I assume it went something like that, I don’t know, I wasn’t there. The point is it was fairly labor-intensive and high-touch. For this they’d charge you something like $39 on your 100-share order, and it seemed like fair compensation for all the running around.

The way stockbrokers work today is that you open up a website, or an app on your phone, and you hit a button to buy 100 shares of stock, and a series of wires carries your order from your computer or phone to the brokerage’s computers, and then it keeps right on going to the computers of a high-frequency trading firm that pays your brokerage to receive your order, and the trading firm sells you the stock. No human at your brokerage firm or anywhere else will ever notice your order, or do anything about it, and the marginal cost of executing the order—considering that the trading firm is paying your broker for it—might be negative.