Test Driving Zecco.com: Free Trading, But At A Price

by: Investing The Middle Way

You probably have heard about Zecco already. The name stands for ZEro Cost Commission. True to their word, they offer zero commission internet trading for stocks and ETFs, for both market and limit orders as long as the account balance is above $2,500. There is a limit on the number of trades but it’s a more than generous 10 trades/day, 40/month. Bank of America (NYSE:BAC) also offers free trading to customers with a combined $25,000 in all accounts in a growing number of states. However, after comparing the other fees it was obvious Zecco was the clear winner, so I decided to give it a try.

Source: Zecco

Application/ACH transfer
I was actually offered a Zecco account; I suppose because of my blog. I signed up for an account which lets you participate in their forum and post blog entries. Online trading requires a separate application and password.

The online application was a snap and I received approval the next day. However, I found the interface unpolished in several places. It lacks the ability to enter trailing loss or conditional orders (which BAC lacks also). Since they were upfront about this limitation, I was not too disappointed.

When it came to set up the ACH transfer, however, I found the interface cumbersome and unintuitive. For example, on Nov. 27th, I scheduled a transfer on the 29th. However, once that request was entered, I had trouble finding a record of it. I ended up emailing them on the evening of 28th (No 800 number or dedicated phone number for trading help only) and got this reply the next morning.

Thank you for contacting Zecco Trading. You will need to click on PENDING Transfers to see that we have received the request. I do show a pending ACH for your account. We appreciate your input on our ACH processes, we would like you to know that we are constantly upgrading our website and this is an area we are looking to improve.

Should you have any questions, please refer to www.zecco.com

Thank you for your interest in Zecco.

The ACH transfer did manage to go through and I was fairly happy with the way they handled my questions.

Order execution
Zecco is true to its name. Both buy and sell orders, market or limit, are free. You do have to pay the usual SEC fees upon selling. At $30.70 per million, it shouldn’t break anyone’s bank.

Zecco claims the industry standard of 30 seconds for order handling. It doesn’t offer level II quotes but through another online broker I was able to see my limit orders routed through the Pacific Stock Exchange [PACX] only seconds after they were entered. On one occasion, I modified an existing limit order and it took over a minute to appear. It’s probably faster to cancel existing orders and enter new ones rather than using the “modify” function if such things matter to you.

Zecco also offers stop market and stop limit orders, but not conditional orders.

Reader questions about Zecco
TJP asked if they offer dividend reinvestment. My original answer was “no” which was incorrect. From their FAQ:

Does Zecco Trading allow account holders to automatically reinvest dividends for equities and exchange traded funds?

Yes, dividend reinvestment is a feature that is available to our clients and can be setup during the account opening process. If you would like to add this feature after the account opening process is complete, you must submit the request in writing to our customer service department.

However, you can’t buy fractional shares at this moment.

Taz asked if there is a fee associated with ACH transfer. The answer is no, but it may take up to three days for the money to go through. Taz also asked a question regarding the $2,500 minimum account balance to get zero commissions. The account balance is defined as the sum of the market value of all the securities and the free cash balance. The minimum applies to the account balance, not the free cash balance, so it doesn’t keep the $2,500 tied up.

Trouble with my account
I’ve received reader comments about how thrilled they are with Zecco. Not surprising given what I’ve said so far. However, I have been experiencing some serious problems in my account personally.

This is what happened. I opened the account primarily to test a momentum trading model with a holding period of several days on average. Naturally, the promise of zero commission was extremely attractive. My first trade involved 50% of the capital and lasted 5 days with a 1.4% profit. Everything went smoothly and I was able to use the full amount right after exiting that position (customary in a margin account). My second trade deployed close to 100% of the capital which I exited 2-3 days later at an average profit of 1%. However, I noticed that my cash was locked up for 3 days (customary in a cash account). To my horror, I also noticed that my balance became much less than what it should have been.

For some reason my account was deemed “subject to IRS backup withholding” of 28%. The punch line was that it was 28% of sales, not of profits. So after two profitable trades that turned over nearly 150% of my capital, my account is down 150% x 28% ~ 40% from what it should be.

Apparently, this was caused by some missing paper work. It happed frequently enough that Zecco actually has a page about this, titled, no joke, “Where is my money?” There is also an active thread in their forum about this.

Here are my gripes:

  • I followed the instructions after the on-line application and mailed in the signed W-9 form. My missing form (not required for all applicants) was not mentioned in those instructions. I found out about the missing form after the withholding had already taken place by calling customer service. As a matter of fact, the customer service rep promised that someone would contact me regarding the form, but no one did and I got the form myself from their website.
  • My biggest gripe was that nowhere on the website was there any record of the withholding. It was as if the money simply evaporated. If you follow the forum link above, you will find the issue was first raised at the end of October. The president of Zecco actually responded to that thread so I’m sure management is aware of this. Elsewhere on their website they say they are working with Penson, their clearing firm, to resolve that issue. At any rate, they have known the problem for at least 6 weeks and nothing has been done. This is unforgivable because I can’t imagine a more pressing concern than proper accounting of the customer's money.
  • I faxed as well as mailed in the hard copies of the required forms last Tuesday. On Thursday there was a power outage in the middle of my call with a service rep. On Friday, I was finally able to confirm that all the needed paper work would be in place after the hard copy arrives.
  • Throughout this ordeal, my emails were never answered. It was quite tricky to reach a live operator, although I’m getting good at it.
  • On more than one occasion, the customer service rep had to put me on hold for several minutes while looking up my file which makes me question their information organization system.

The other problem I had with the site's money market sweep was probably related. Currently, I’m earning only 1% on the free cash balance. One person from Zecco’s marketing department contacted me to offer help after reading my remarks in the comment section of my blog. I declined since I wanted to have the perspective of a typical customer.

They did say on their website that if they don’t receive the proper paper work within 30 days, Penson will forward the withholding to IRS. For now, I can only hope that I get money back soon.


I began this review more than a month ago. One reason I waited so long to finish it was that I was simply livid about the missing funds. As they say, you shouldn’t go food shopping while hungry… bad analogy but you get the picture. Had I written this a week ago, the tone would have been very much different.

I decided to try Zecco in the first place because of their “anti-establishment” feel, and I still want them to succeed. But I have to face up to how unpolished they are now. So I’ll make the following limited recommendations. I think Zecco is good for:

  • Experienced online investors who use Zecco as an alternative account. This is somebody who knows exactly what she wants and who sets up everything right in one shot.
  • Novice investors who care a great deal about trading cost and who is content with the basic buy and sell operations.

If you do decide to open up an account at Zecco, do learn from my experience: send in all your forms!