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oai:keep.lib.asu.edu:node-1980602025-02-13T16:53:58Zoai_pmh:alloai_pmh:repo_items

198060 https://hdl.handle.net/2286/R.2.N.198060 http://rightsstatements.org/vocab/InC/1.0/ http://creativecommons.org/licenses/by-nc-sa/4.0 2024-12 34 pages Pugliese, Logan Rechkemmer, Zachary Tsarsis, Gary Schneider, Laurence Barrett, The Honors College Economics Program in CLAS School of Mathematical and Statistical Sciences Text Fractional and zero-commission trading has revolutionized the financial markets by lowering entry barriers and democratizing investing for retail participants. These innovations have enabled younger and less capitalized investors to access high-priced stocks and trade without traditional commission costs. However, these benefits are accompanied by significant challenges. Fractional trading can reinforce behavioral biases, such as nominal price illusion, while zero-commission platforms, often dependent on Payment for Order Flow (PFOF), incentivize frequent and speculative trading. The gamification of trading on platforms like Robinhood further exacerbates these issues, promoting behaviors more akin to gambling than strategic investing. On a market-wide scale, these models have shifted liquidity dynamics, increased price pressures on high-value stocks, and diminished the need for traditional stock splits. They have also introduced attention-driven volatility and sentiment-based market noise, complicating valuation and investment decision-making. Regulatory concerns regarding PFOF’s impact on execution quality and the lack of transparency in fractional trade reporting highlight the need for oversight to protect retail investors. This paper explores the dual impact of these trading models on retail investors, brokerage firms, and the broader market. It proposes mandatory reporting of fractional trades to enhance transparency and a cap on PFOF fees to align brokerage incentives with consumer welfare. While these innovations have democratized market access, sustainable growth requires a balance between accessibility, transparency, and investor protection to ensure market integrity and equitable outcomes for all participants. Fractional Trading Zero Trade Commission Retail Investors Behavioral Bias Financial Regulation The Impact of Fractional Trading and Zero Trade Commission