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Feb 4, 2022

Free Memberships

By:Josh Fabian

A More Accessible Market

It used to be that if you wanted to buy or sell stock, you’d have to pay to play. Commissions on top of minimum ticket charges could easily add hundreds of dollars in cost to your transactions. The maturation of the internet and technology as a whole created new opportunities for more participants and as a consequence, the barriers to entry in the form of costs, were reduced over time to the point where most recently, buying or selling stock can be done without any additional fees. As a result, not only do more people participate in markets, which is good for capitalism in general, but it’s opened the door to other products for retail investors to leverage.

Fitness clubs were built on a model of monthly or annual fees that were so high, most people couldn’t afford to join. When the XSports and Plant Fitness’ of the world began springing up, it changed the dynamics of the industry. More people joined gyms for little to no money. However, once they were inside, they spent money on personal trainers, classes, protein shakes, etc. and gyms were making more money on more members. Financial markets underwent a similar transformation.

Retail Trader Focused Companies

As recently as thirty years ago, participation in markets was cost prohibitive. The Merrill Lynch, Goldman Sachs old guards of finance were the high end, unaffordable gyms. Then companies like E*Trade came along with much lower costs. That brought in more participants. Then Thinkorswim introduced those same people to options. tastytrade and tastyworks took it further with futures and futures options. Today, there are more active retail traders than at any point in history.

Participation is a prerequisite for capitalism to flourish. The more participants, the more liquidity, the greater efficiency and transparency. More engagement by more people also is what has allowed derivative trading volumes to swell. Retail traders want to not only participate, but they want to do so in the most cost efficient manner possible.

A Shift in Trading Power

When online brokerage firms began popping up, old world finance poo-pooed them. They argued without their expertise, investors would lose all their money. They employed scare tactics and decided to wait out this new fad, as they saw it.

Look at today’s competitive landscape in financial markets. Merrill was bought by Bank of America. Bear Stearns? Gone. Lehman? Gone. Stockbrokers are as extinct as dinosaurs. Those firms with their antiquated thinking, controlling who was allowed access to markets are all gone. As a result, we have the most robust pool of liquidity we’ve ever experienced. We have more accountability forced on companies vying for our money. We have more efficient and better ways to earn decent returns on investments than ever.

When you remove barriers to entry, you open yourself up to more participants. That’s a good thing. Those participants will want to actively engage more. That engagement is good for them and it’s good for business. The exclusive members only clubs may have offered an air of prestige. But the all-are-welcome model is the one that actually works best.

Written by Dylan Ratigan and Josh Fabian

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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