Donato A. Montanaro, Jr., TradeKing’s founder and CEO, is one of the true electronic brokerage pioneers. He worked in the nascent industry back in 1992 when, he recalls, “online trading meant connecting to a broker through CompuServe with a 1200-baud dial-up modem.”
Montanaro was the founder and President of SureTrade, launched in 1997 with the then lowest online trading commissions, $7.95. SureTrade became the 8th largest online broker and merged with Quick & Reilly’s online brand as part of Fleet Bank and Fleet Financial.
Today, Montanaro is pioneering online trading “3.0” as founder and CEO of TradeKing, a new small but high-powered Web-based discount broker with cutting-edge trading tools and bleeding edge financial networking platforms.
I spoke with Montanaro by phone to learn how he plans to challenge online trading behemoths eTrade Financial, TD Ameritrade, Charles Schwab…
Below is a “Real Deal” Q & A interview conducted via email; “The Real Deal” questions are followed by Montanaro’s responses in italics.
1) You are one of the original innovators in online trading and have been a leader in the industry since the early 1990’s . What is it about the sector that you find so compelling?
The fastest access to the most relevant information coupled with the immediate ability to take action are required to succeed in the markets. It’s challenging and competitive. Trading itself is an exciting and compelling process and the online brokerage operational model is one of a few “proven”, even mature, business models on the Internet. Data exchanged via the Internet, including stock quotes, research reports, financial statements, analysis and trade order information, makes the net ideally suited to this business. Additionally, revenue for a firm like TradeKing is primarily transaction-based, and expenses are largely variable. That lets you build and scale a business at the appropriate pace. The growth in the popularity of trading online has been driven by a strong desire by an increasing number of people to connect with – and control – their own personal finances. I’m proud to contribute to that movement.
2) Market leaders eTrade Financial, TD Ameritrade, Charles Schwab…have strong brand recognition and are well entrenched. Why is now a good time to start-up another online trading company from scratch?
“Well entrenched” is an understatement – the firms you mention represent a virtual oligarchy! Recent industry consolidation has eliminated customer choice, revealing a landscape of sameness, and creating an opportunity for a new participant in the marketplace – TradeKing – to shock clients with a truly fresh approach to their needs. When mergers occur, customers are often inconvenienced by being forced onto the acquiring brokerage firm’s platform. Sometimes costs and fees increase as well. From a customer’s perspective, the alternative to being “acquired” by consolidation is to be “attracted” by a better broker – particularly one that offers greater value overall. TradeKing is one of the few brokerage firms today that offers brokerage clients a real choice.
3) The market leaders are heavily capitalized. Do you have the resources to compete? What is TradeKing’s investor profile and financial backing?
TradeKing is not trying to go head-to-head with the market leaders, nor is it trying to be all things to all investors. The company’s target market is a select group of traders who are active, Web-based traders who like to trade options and stocks. TradeKing is well positioned, both strategically and financially, to compete very effectively within this niche market
TradeKing investors include some very well-respected private investors who are experienced in the brokerage industry, as well as some respected venture capital firms. Members of the Quick family, founders of Quick and Reilly, are privately supporting the venture, as are Bruce Rauner, a principal at the Chicago private equity firm GTCR. Two other nationally known venture capital firms holding an interest in the firm are Battery Ventures and OCA Ventures. Financially, we have all the capital and support we need to compete and win.
4) What is your marketing plan for acquiring customers? What is the profile of your target trader?
First, and it’s not just a semantic but also a philosophical point, and an issue of respect: TradeKing attracts new clients, we don’t acquire them. Word travels really fast amongst the community of online traders. People with an understanding of – or an interest in – the market know what’s going on and who the people and players are that they should know. In the short time TradeKing has been in business, the right people have become aware of us. We will use advertising and marketing promotions to build on this awareness, but word-of-mouth will always be a big factor in our attracting customers within the competitive marketplace. A strong value message and low price point will help TradeKing to very efficiently draw customers from the open marketplace.
The typical profile of a TradeKing client is an experienced, knowledgeable online trader – approximately 80% of whom are male – who tends to trade actively during all market conditions and who increasingly uses option trading as a tool, whether to hedge or “insure” an equity stock position or to leverage potential return on a directional prediction.
5) What differentiates TradeKing from existing electronic brokerages?
TradeKing is unlike other electronic brokerage organizations because it integrates a traditional trading platform with new option trading tools, such as the P&L Calculator, the Probability Calculator, and nineteen different strategic option chains. It also is the only brokerage firm in the world to actively use Web 2.0 tools, including a Wiki, blogs and RSS newsreader, within its brokerage platform. The company also places great emphasis on providing world-class customer service. Our clients are real people, not numbers, to us – and we treat each person with respect. TradeKing has found a way to offer the lowest commissions in the industry, while still maintaining a healthy operating margin, a testament to our ability to manage technology, marketing and clearing expenses while maintaining revenue growth.
6) How will you quantify and measure the success of your community features?
Short-term, the goal of TradeKing’s social network is to find the right mix of new and innovative communication technologies, such as RSS feeds, blogs, ratings and tags, that will spark interest and participation from fellow community members. Success will be measured in the quality and value of the knowledge exchanged between members of the community. Like the rest of our site, and our firm, our clients will tell us what is working and what isn’t, and we’ll react.
Over time, TradeKing hopes to leverage the credibility of being an NASD licensed brokerage firm to facilitate open and honest discussion about investing backed by real, certified, trade data. A number of new ideas to attract customers through the social network have been considered and some are being set in motion. Again, as our profile continues to rise, so will our growth and the successful community experiences we’ll share.
7) Is TradeKing a competitive threat to eTrade, TD Ameritrade, Charles Schwab?
TradeKing is a next generation niche player within the industry – nimble, client-focused, and powered by community. We doubt we will be considered a major threat to those large, established online brokerage firms for quite some time, if ever.
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