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Private investors and the emergence of neo-brokers: Do investors pay higher execution prices at a neo-broker with payment-for-order-flow?

Author

Listed:
  • Meyer, Steffen
  • Uhr, Charline
  • Johanning, Lutz

Abstract

We investigate the implicit trading costs of neo-broker clients using trading data of 100,000 clients at Trade Republic. Comparing execution prices at the neo-broker to Germany's reference market (Xetra) order book prices, we show that routing orders to one pre-specified trading venue leads to <1 % of transactions being executed at prices worse than on the reference market. In terms of total trading costs, customers benefit from this new trading venue because the trade-related costs other than the spread (explicit costs) are favorable compared to traditional online brokerages.

Suggested Citation

  • Meyer, Steffen & Uhr, Charline & Johanning, Lutz, 2025. "Private investors and the emergence of neo-brokers: Do investors pay higher execution prices at a neo-broker with payment-for-order-flow?," Finance Research Letters, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finlet:v:80:y:2025:i:c:s1544612325006774
    DOI: 10.1016/j.frl.2025.107417
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    More about this item

    Keywords

    Household finance; Individual investor; Fintech; Neo-broker; Trading costs; Payment-for-order-flow; Inducements;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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