Tradestation is an online broker which offers software for online trading. It has been in the industry for more than 25 years. Today, this platform has become one of the most popular choices for most active traders because it allows users to trade commission-free on equities, equity options, and futures trades.
The question we’re going to unravel in this article is: How does Tradestation make money? There is a lot of buzz around the company, and we’ll try to take a deep dive and get answers and insights about Tradestation’s business model and how it makes a profit.
Tradestation operates on a SaaS model as a trading platform. It makes money through subscriptions that allow customers to use the platform to trade some securities commission-free. It also makes money off commissions from other securities that are not commission-free, such as options and futures contracts.
Tradestation is a trading platform for various securities: stocks, bonds, mutual funds, ETFs, IPOs, options, futures, cryptocurrencies and Forex. Even though Tradestation offers commission-free trading for stocks, it finds ways to make money through other services and from other asset classes.
The platform is packed with tons of features that let traders trade with ease.
Business Model of Tradestation
As a trading platform, Tradestation has a SaaS business model and also qualifies as a FinTech. Tradestation’s 99.999% uptime makes it stand out from its competitors. Its competitors include:
- Fidelity Investments
- Raymond James
Under the products section of its website, Tradestation lists the various securities that can be traded on the platform: stocks, options, IPOs, futures, etc. Subscription users have access not only to trading services, but also to various trading strategies and software and web applications, including but not limited to the following:
- Web Trading
- Mobile Apps
- Simulated Trading
Investopedia claims that Tradestation has many appealing features and advantages:
- TradeStation offers an incredibly stable and reliable platform with 99.999% uptime.
- Tradstation’s platform has exceptional charting, technical analysis, backtesting, order entry, and trade automation technology.
- The TradingApp Store offers a large selection of third-party add-ons, including technical indicators, strategies, and order placement utilities.
- There is no account minimum for TS GO
- There is a $2,000 for TS SELECT, which offers commission-free stock and ETF trades, and competitive pricing on options, futures, futures options, and cryptocurrency
- TradeStation is geared toward active, technical traders. However, new products and offerings make the platform attractive to less experienced traders and casual investors.
Tradestation has been around for over forty years, so most serious investors know about Tradestation. Thanks to their new owner, Monex Group Inc., Tradestation now has a global presence.
Tradestation has all of the expenses that we would expect for a SaaS and a FinTech.
As with any SaaS and FinTech, Tradestation needs to pay for technically skilled staff, their energy expenses, and the maintenance of their equipment.
Other SaaS related expenses we could expect for Tradestation include:
- Payroll for development
FinTech related expenses might include:
- Market research
- Trading technology
- Licensing and fees
- Business consultants or freelancers
- One-off legal contracts
- Office space rental
- Website maintenance
- Domain fees
- Office supplies
- Recurring legal fees
- Accountant fees
Because of Tradestation’s 2011 merger with Monex Group Inc., Monex is now the architect of Tradestation’s plan for continuous profit. Because Monex has a global presence, Tradestation will continue to have access to new market share, not just in the US, but in Europe and Asia as well.
How Does Tradestation Make Money?
Tradestation is a trading platform for all manner of securities and the subscriptions purchased for the purpose on each security become a revenue stream for Tradestation.
The commission that Tradestation charges for contract-related securities, such as options and futures, is also a revenue stream.
The ability to trade on Tradestation is subscription based, as a SaaS:
- Amateur traders $99/month
- Professional traders $100/month
Under the products section of its website, Tradestation lists the various securities that can be traded on the platform: stocks, options, IPOs, futures, etc.
Obviously, most brokerage firms allow its users to trade stocks (equities). Tradestation users have access to all of the major exchanges: Nasdaq, Nasdaq BX, NYSE, NYSE AMEX, NYSE Arca, BATS, BATS Y, EDGX, and EDGA, as well as OTCBB and Pink Sheets securities.
All of the usual types of orders are permitted: market orders, limit orders, and trading on margin. Stock traders have the option to buy long or sell short. Stock trades are commission-free but commission-free stock-trading clients are required to keep a minimum of $2000 in their trading accounts.
Tradestation users have the opportunity to trade on the ETF market (exchange-traded fund) commission-free.
For those who do not know, ETFs are basically collections of various securities that include more than simply stocks: bonds, commodities, cryptos, mixed investments, etc. ETFs, as bundled investments, are traded in a manner similar to index funds and mutual funds, except, unlike for mutual funds, Tradestation charges no commission for ETFs.
Tradestation users can trade IPOs (Initial Public Offerings) commission-free. The appeal of IPOs is that by buying a company before it goes public, the investor has an opportunity to get in early if the company is a promising one.
Having access to a good IPO Trading Platform gives astute investors the opportunity to study companies before they go public and buy in at a reduced price before the feeding frenzy begins on opening day.
While not listed under Tradestations products on the Tradestation website, Tradestation users have access to trading quotes, major trading currencies, cross-rates and forex pairs.
For those who do not know, Forex is simply exchanging one currency for another in the hopes that the currency you purchase will go up in value against the currency you exchange.
Contract Fees and Commissions
Even though Tradestation’s trades are commission-free for many securities/asset classes, there are some other, often contract-related, securities for which Tradestation does charge a fee and is allowed to make profit from: options, futures, mutual funds, bonds, and cryptocurrencies.
Like most prominent brokerage firms, Tradestation users have the opportunity to trade options in a manner similar to the way they would trade stocks. Unlike trading equities, options contracts, however, do require a fee. Tradestation charges a $1.00 fee per options contract.
For those who do not understand exactly what an options trade is, it is a contract to buy or sell a tradable asset at a particular price, the strike price, by a certain expiration date defined in the contract, thus the difference between American and European options. This tradeable asset can be virtually any security: stocks, bonds, ETFs, mutual funds, currency, cryptocurrency and even commodities like coffee, tea, and gold.
There are two types of options traders in an options contract, the holder and the writer. Options contracts can be divided into two categories, call and put.
In a call option, the holder expects the asset to go up in the future, and therefore purchases a contract that will allow the holder to buy the asset at a predetermined price, the strike price. The writer is on the end of the options trade. If the asset moves above the strike price as the holder predicts, the options contract becomes valuable, the holder makes money and the writer loses money. However, if the asset moves below the strike price and does not recover before the expiration date of the contract, the contract becomes worthless and the holder loses money while the writer makes money.
In a put option, the holder is betting that the asset will go down in the future. Therefore, the holder purchases a contract that allows the holder to sell the asset at the strike price, with a guaranteed buyer. If the asset moves below the strike price, the buyer is obligated to buy the asset at a high price and the options contract becomes valuable and the holder makes money. If the asset moves above the strike price, however, since it is a put option, the contract becomes worthless and the holder loses money.
Tradestation allows its users to trade futures but does charge a fee of $1.50 per contract, per side and for micro futures a fee of $0.50 per contract, per side.
Futures are also contracts, usually for stocks, indexes, and commodities, that allow traders to pay on a future date upon delivery. They are traded in a manner similar to options.
The major difference between a futures contract and options contract is that the options contract is actually optional. If an options contract holder chooses not to complete the contract, the holder simply loses the investment in the option. A futures contract, however, is “written in stone” and the contract must be completed.
TradeStation offers over 350 futures and futures options products to trade, which means expanded trading opportunities in a wide range of markets, including but not limited to the following:
While not listed under Tradestations products on the Tradestation website, Tradestation users have the ability to trade mutual funds. Tradestation charges a $14.95 fee per mutual fund trade.
While not listed under Tradestations products on the Tradestation website, Tradestation users have the ability to trade bonds: government, corporate and municipal bonds. The commission is $14.95 plus an additional $5 per bond.
While not listed under Tradestations products on the Tradestation website, Tradestation users have the ability to trade cryptocurrencies:
- Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Litecoin (LTC) and Ripple (XRP)
The commission that TradeStation charges is reasonably low:
- 0.3% per trade for accounts with balances of $100,000 or less, and even less for higher volume crypto traders
The Big Merger
On June 10, 2011, Monex Group Inc. completed the acquisition of Tradestation, by buying them for approximately $402 million. As a result of the merger, Tradestation became a fully owned subsidiary of Monex.
Monex Group Inc. is a Tokyo-based online securities brokerage that offers other services as well:
- M&A advisory
- debt & equity underwriting
- asset management focusing on alternative investments
- investment education
- other investment banking functions
They serve more than 1.2 million individual investors in Japan. Monex, however, wanted to expand its operations globally. For the US market, Tradestation and its brand was a natural choice for the extension of its market share and influence.
Conclusion: How Does Tradestation Make Money?
Tradestation is surely one of the leading trading platforms. It offers a best-in-class trading software that offers numerous useful tools that enable you to execute your trading strategies in the most convenient way possible.
The advanced charting features offered by TradeStation are simply the best. It is compatible with many leading brokers, making it easy for you to seamlessly connect to them and start trading with them.
It was quite an adventure writing this in-depth, all-encompassing article about Tradestation’s business model. We hope this article has given you valuable insight into how Tradestation makes money.
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