Launched in 2015, Alpaca is a crypto and stock trading platform that has gained massive popularity for its commission-free APIs. Alpaca is based in San Mateo, California, and its US stock offerings are provided by Alpaca Securities LLC ("Alpaca Securities"), a member of FINRA and SIPC. Its crypto offerings are made available by Alpaca Crypto LLC ("Alpaca Crypto"), a FinCEN registered money services business, ensuring top-level security and safety for both investors and traders.
In this review, we discuss Alpaca's features and its pros and cons to help you decide if this is the right platform for you.
What is Alpaca?
Alpaca is a brokerage platform that allows users to buy and sell both crypto and US stocks in one place. Alpaca is also known for their easy-to-use trading API where users can trade over 50 crypto pairs and thousands of US stocks. Alpaca is uniquely focused on performance-driven API trading and offers spot trading where users can trade over 20 coins directly from Alpaca dashboard app or using the Alpaca connect.
These strategies have done wonders for Alpaca as developers have created several custom solutions and provided useful third-party integrations, which benefited retail traders. They now have access to US stock markets, historical data, and fundamental data through Alpaca's API and can capitalize on the data by implementing advanced machine learning algorithms. This opens a whole new field that has huge upcoming potential as programmers can integrate artificial intelligence (AI) to help in their investment.
The founders of Alpaca have also expressed interest in eventually opening up pre-made algorithms to people who do not want to code, but for now, the platform only includes capabilities for manual coding and research.
As mentioned, Alpaca offers a commission-free API which is completely free. This begs the question: how does Alpaca make money? To answer this, we searched their website and found two ways Alpaca can potentially earn money and sustain its business.
Interest on cash balances: Traders may not always have good investment opportunities, or the market may not be in a position for them to invest. In such a situation, a large sum of money is left untouched and traders are entitled to collect interest on their balance. One way Alpaca makes money is by taking a cut of the interest. Whether the amount is significant depends primarily on how large of a balance a trader holds in their trading account. For small to medium investors, this should not be a large sum; however, for traders who are not active, the fees may compound to a large sum.
Payment for order flow: Brokers are paid a small fee for delivering client orders to a particular exchange. This is standard practice, and lots of brokers follow it. Customers usually receive about one cent per share, according to Investopedia. The information is taken directly from Alpaca's website. But there are other charges that all exchange platforms have, like margin interest rates which can often be around 3.5%. From the onset, 3.5% may not seem to be a lot, but for example, you have 5,000 USD in your account and purchase 15,000 USD worth of securities. Now you will be liable to pay interest on the overdraft, which accounts for (3.5% of 10,000) 350 USD amounting to almost a dollar a day.
In comparison, platforms like Interactive Brokers charge 1.75%, which is half of what Alpaca charges. However, on MooMoo and WeBull, the interest rates are 6.8% and 7%, respectively. So Alpaca does make money to make it a sustainable business, but overall, because of the commission-free approach, it's absurdly good in terms of fees.
Alpaca also does not require any minimum deposit, and you can open an account with just $1 for an individual account. Of course, you can’t make any money investing $1 on the platform, but it can be an excellent way to try out the platform before committing large sums of money.
How to Sign Up and Trade on Alpaca
Opening an account on Alpaca is fairly simple; you visit their website and click on the signup button if you have not registered already or click on login and enter your credentials. When signing up for the first time, you will need to submit a copy of your government-issued ID card as part of Alpaca KYC (Know Your Customer) policy.
Alpaca Pros and Cons
- Easy to use APIs
- Trading available for US and Non-US residents
- Free stock & ETF trading
- Free data (via third-party data vendors)
- Fantastic charting tools
- Very good community support (discord, slack, forum)
- Great for people who can code
- Higher interest costs
- Only offers US stocks
- Require $30,000 account minimum for non-US Business trading accounts
Is Alpaca Safe?
Alpaca is fully regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). They are also a part of the Securities Investor Protection Corporation (SIPC) and offer protection up to $500,000 per customer if anything were to ever happen to Alpaca.
Final thoughts on the Alpaca
Alpaca is uniquely positioned in the market with its commission-free stock trading, investing for everyone, and a strong focus on enticing users to take advantage of its API. Alpaca is growing at a rapid pace, and it will be interesting to see what interesting projects surface in the Alpaca developer community.
However, if we are nitpicking, the margin interest rates can be a bit on the higher side, and currently, the availability of Alpaca is restricted to the US. But compared to the grand scheme of features and insanely good rates Alpaca provides, there is no doubt in our mind to recommend Alpaca as one of the best trading platforms in the US.