The cloud-movement in tech has given us some very useful and convenient applications over the years: Google (GOOG) Drive, Amazon (AMZN) Web Services, IBM (IBM) Cloud Computing and Athenahealth’s (ATHN) cloud-based healthcare services, just to name a few.
But few companies have utilized the power of the cloud to enhance investing like Tradier, an startup brokerage firm that’s carving a niche for itself as the world’s “first brokerage API company,” according to spokesperson Frances Del Valle.
If you’re not quite sure what that means, you’re not alone. In a recent review in Barron’s, author Theresa Carey said “We like Tradier, but we’re not quite sure what it is.”
We spoke with Tradier co-founder, chairman and CEO Dan Raju to learn more about how his API-based brokerage is developing innovative new trading solutions for individual investors and companies.
How Does Tradier Work?
In order to understand what Tradier is and how it works, you should familiarize yourself with the term “application programming interface,” or API.
In simple terms, a company develops an API when it wants users to connect directly with its data and software. For example, Amazon’s API allows third-party sites to post links to Amazon products featuring current prices and a “buy now” functionality. (For more information, read Definition of ‘Application Programming Interface – API’.)
Tradier is a cloud-based, FINRA licensed API platform that can retrieve aggregated data on equities, options, ETFs and mutual funds directly from the markets.
“What we offer is a simple API that lets anyone build trading capability right in their application,” Raju said. “[With Tradier], the act of trading does not need to happen within the four walls of a brokerage firm. It could happen from something as simple as a blog or a social media post.”
To date, more than 30 third-party sites have began implementing Tradier in one form or another. For example, financial social network Scutify began offering trading services directly to its users using Tradier.
“By letting Scutifiers buy or sell with one tap or click, the service closes the gap between finding news and taking action,” according to a Scutify press release.
While APIs themselves aren’t exactly a new technology, “the way Tradier is approaching the brokerage business is new and has the potential to be disruptive,” according to Blain Reinkensmeyer, who is head of broker research at StockBrokers.com. “Tradier is innovating in a positive way.”
The service is not unlike a white-label brokerage service. But “it is much more powerful than that… It’s actually white-labelling on steriods,” Raju said. “White-labeling, you can call it that, but that’s old school. The new paradigm is APIs. White-labeling used to take you months, but with APIs you can do things in a fraction of that time.
A New Platform for Robo-Advisors
Tradier contains interesting tools for financial advisers and wealth management firms, as well. For example, third-party developers can build applications featuring algorithmic and robotic trading systems, effectively letting people develop their own robo-advisors (similar to Betterment or Wealthront) for a fraction of the time, cost and effort.
Raju said that if someone wanted to start their own robo-advisor a year ago, it would’ve required that person becoming a broker dealer, building a company from the ground up and jumping through several regulatory hoops.
But with Tradier, “you don’t have to worry about data, you don’t have to worry about execution, you don’t have to worry about… running a huge brokerage operation,” Raju said. “All you do is build your front-end with the tools you have and boom -- you’re up and running.”
How Does Tradier Make Money?
Like every other brokerage (unless you’re Robinhood), Tradier charges a variety of fees and commissions for anyone who uses the service.
According to their pricing page:
- Equities: $3.49/order
- Options: $0.35/contract
- Margin interest: 5.5% ($0-$50k), 5.0% ($50k-$100k), 4.5% ($100k+)
- Account opening minimum: $1000
"On paper, yes, Tradier is less expensive per trade than the vast majority of the industry,” Reinkensmeyer said. “Developers can charge whatever they want for their platforms and tools, of which Tradier takes no cut, and Tradier then runs its brokerage, making money off commissions, margin, and similar traditional brokerage services.”
While Reinkensmeyer called this arrangement a “win-win” for those involved, he stressed that potential clients need to understand that Tradier effectively provides just executions and account management.
“Many platforms approved for use with Tradier charge a monthly rate, sometimes over $100, so effectively you are paying for your own platforms and tools,” he said, “Whereas with a traditional online broker, say TD Ameritrade (AMTD) or E*TRADE (ETFC), the commissions may be higher but everything is included.”
The Bottom Line
A Tradier spokesperson said the company is on track to have over 50 partners by the end of this summer. A new partnership with Apex Clearing announced in late April is also a promising sign for the company.
Since launching in 2013, Tradier has continued to grow and foster new relationships with the financial community looking for new, innovative and cost-effective ways for their clients to invest.
Disclosure: The author is long shares of Google (GOOGL).