I enjoy social media. I can keep in touch with family half way around the globe and let them know what I ate for lunch. Furthermore, I can share funny cat videos with friends from high school. Good times. One of the great things about social media is that it's free! I pay nothing to have social media account. And yet, many of these companies are making lots and lots of money. How so?
When I drive down the interstate for free, I see billboards. I don't have to pay for the interstate or the billboards, the advertisers do. When I watch TV, it's free but I do have to sit through commercials. And so with social media. It's free, but that's because I am what's for sale. My thoughts and opinions and purchasing power are harnessed by powerful computer algorithms and my eyeballs are sold to specific people who are looking just for me. Sometimes it works and I buy delicious low carb cereal. It's really good by the way, call me if you want to know more. But sometimes I get advertisements for Ketamine therapy and walk-in bathtubs. Maybe they know something I don't know.
Well this is also true of "free" online brokerages. Somehow they are making money. One way they do this is by scalping the interest on your cash. Not a big deal in this low interest rate environment. Second, they'll lend you money to buy stocks. The interest is called margin and creates a profit center. Finally, they sell your order flow. It's complicated so perhaps in your free time you could Google: "payment for order flow." This is all disclosed and quite kosher.
What has the Securities and Exchange Commission concerned is the way online trading firms are "gamifying" the buying and selling of securities. Not too long ago one online trading firm would have a virtual burst of confetti hit the screen when your buy order was filled. Source: click here
Artists rendering of what "Completed Order Confetti" might look like. Any similarities to applications real or fictional is coincidence.
They wanted to make it fun and playful. What could possibly go wrong? Another tactic is creating trading recommendations by showing outrageous fortunes using "predictive" analysis. You can read more click here.
Investing for the future is not a game. And you shouldn't get played.