Slow trading levels by U.S. retail investors has hurt both companies.
U.S. online brokerage firms Zecco and TradeKing announced today their intention to merge, a move apparently brought on by both firms' VC backers in the face of slowing trading markets facing both companies.
Zecco and TradeKing both cater to the "lower end" of the retail do-it-yourself U.S. investor market, offering lower (i.e. sub-$5) per-trade commissions than larger competitors such as E*Trade, Scottrade, TD Ameritrade, Fidelity and Charles Schwab. And that segment of the market has been particularly hard hit, as retail investors have largely stayed away from the equity markets since the 2008 financial crisis.
Based on website usage data both firms are roughly of similar size, Zecco being a little larger, and both are backed by venture capital financing raised about five years ago – Zecco by Velocity Capital, and TradeKing by Battery Ventures. As growth slowed at both companies, their backers decided that scale was needed in order to survive in an increasingly competitive and regulated marketplace.
Zecco also launched about two years ago Zecco Forex, which operates as an introducing broker of Gain Capital / Forex.com. The idea was, similar to E*Trade's recent entry into the FX market via a white label with FXCM and Swissquote's 2010 acquisition of ACM, to cross-sell the FX product among the company's tens of thousands of equity traders. While E*Trade's venture is still new, and Swissquote has successfully integrated ACM's operations into its own, our understanding is that Zecco's FX venture has not been very successful, generating less than $5 billion per month in volume.
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.