The 2019 guide to investing in emerging markets

This post originally appeared in Capital Minded, our weekly email field guide to capitalism. Get it here.

February 03, 2019

This might be hard to believe considering the proliferation of free trades today. However, running a brokerage house—e.g. buying, holding and selling securities for customers and doing accounting on that—costs money.

Because of this reality, things that are “free-to-trade” are never truly free. Somebody has to pay for it, and I think people like to imagine that brokerage houses are willingly taking a hit by giving you free trades. What you may not realize, is the person paying for it is often still you.

Backdoor Payola

To explain how this works, let’s pretend I want to start my own ETF. Something really trendy and stupid, to appeal to retail investors.Marijuana and blockchain are both hot topics right now, so let’s build an equal-weight index of companies related to both marijuana AND blockchain. We’ll call it the Capital Minded Off The Chain ETF, and obviously give it the ticker symbol of DANK.

So. Once we get beyond that killer name (which I’m sure is worth $30m in assets alone), how in the world do I get people to put their money in DANK? There’s all sorts of regulation around mass advertising of securities, and regulations are super annoying.

So a friend gives me a tip. Apparently, funds on free-to-trade lists at brokers are far more likely to attract assets. He says investors often list “free trades” as their number one concern when choosing investments—which is quite irrational. Sounds like just the kind of customer who would invest in something called DANK.

So I call up a big brokerage house:

Backdoor Payola

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