This article is for general informational and educational purposes only and is not intended as investment advice.
Many brokerage firms advertise “commission-free trading.” While stock commissions have largely declined, brokerage firms still generate revenue in multiple ways.
A commission is a fee charged by a brokerage firm for executing a transaction on behalf of a client. Historically, commissions were often charged on stock trades and represented a primary source of brokerage revenue. Today, many firms offer commission-free trading for certain securities, while others continue to charge commissions depending on the product, service model, or account type.
Importantly, even firms that charge commissions may also earn revenue through the additional methods described below. Commissions are only one part of a brokerage firm’s overall business model.
Some costs are visible. Others may be embedded in spreads, interest rates, or product expenses.
1. Payment for Order Flow (PFOF)
When you place a trade, your broker may route the order to a market maker instead of directly to an exchange. In some cases, the broker receives compensation for that routing decision.
Market makers may earn revenue from the bid–ask spread, while brokers may receive order routing payments. Regulations generally require broker-dealers to seek best execution of customer orders, considering factors such as price, speed, and likelihood of execution. Routing practices may vary among firms.
2. The Bid–Ask Spread
Every stock has a bid (buy) price and an ask (sell) price. The difference between them is the spread.
Market makers may earn revenue from this difference. Even when commissions are charged, spreads may still represent an indirect trading cost to investors.
3. Interest on Uninvested Cash
Depending on a firm’s business model and account features, brokerage firms may earn interest-related revenue from client cash balances.
If a firm pays clients a lower rate on idle cash than it earns on those funds, the difference may represent a source of revenue. This may apply in both commission-based and commission-free accounts.
4. Margin Lending
Investors who borrow funds to trade securities generally pay margin interest.
The spread between a broker’s cost of funds and the rate charged to clients may generate revenue. Margin trading involves additional risk and may magnify both gains and losses.
5. Securities Lending
Brokerage firms may lend securities held in certain accounts to institutional borrowers.
Borrowers typically pay a fee for borrowing securities. Securities lending practices vary by firm and account type. Clients should review applicable account agreements and disclosures to understand whether securities may be lent and how any resulting revenue is allocated. Some firms share a portion of securities lending revenue with clients.
6. Trading and Product Fees
Even when stock trades are commission-free, brokers may charge fees associated with certain products or services, including:
- Options contract fees
- Futures commissions
- Mutual fund transaction fees
- Broker-assisted trade fees
Commission-based firms may also assess these charges.
7. Asset-Based Advisory Fees
Some accounts charge an annual fee based on a percentage of assets under management (AUM).
This model generates recurring revenue based on account value rather than trading activity. Some firms offer both commission-based and asset-based fee arrangements.
8. Proprietary ETFs and Mutual Funds
Some brokerage firms sponsor or offer proprietary ETFs or mutual funds.
These products may be available without trading commissions but typically include internal expenses, such as expense ratios, that are deducted from fund assets. Depending on the structure, a sponsoring firm or its affiliates may receive revenue associated with managing or servicing these products.
Lower trading commissions do not necessarily result in lower overall investment costs.
9. Revenue-Sharing Arrangements
Brokerages may receive compensation from product sponsors or affiliates in connection with distribution, servicing, administrative support, or platform access arrangements.
Such arrangements are generally subject to applicable disclosure requirements and may exist in both commission-based and commission-free account structures.
10. Account and Service Fees
Additional revenue may come from various account and service-related charges, including:
- Account transfer fees
- Wire fees
- Paper statement fees
- Advisory service charges
These costs are typically described in a firm’s fee schedule and account documentation.
Regulatory Oversight
Broker-dealers in the United States are regulated by FINRA and the SEC.
Firms are generally required to disclose material compensation practices, conflicts of interest, and product-related expenses. Compensation arrangements may create potential conflicts of interest, which firms are generally required to disclose under applicable regulations. Investors can review Form CRS, account agreements, fee schedules, and product prospectuses to better understand how a firm is compensated.
The Bottom Line
Commission-free trading has reduced many visible transaction costs, but brokerage firms may still earn revenue through a variety of sources, including spreads, interest income, margin lending, securities lending, advisory fees, product expenses, and revenue-sharing arrangements.
Even when commissions are charged, these additional revenue sources may still apply.
Understanding how a brokerage firm is compensated may help investors better evaluate the total costs and features associated with their accounts.
Disclosure
This material was written on June 2, 2026 and is provided for educational purposes only. It is not intended as investment advice or a recommendation to engage in any investment strategy and should not be construed as personalized investment, legal, tax, or financial advice. Brokerage practices, compensation structures, fees, services, account features, and regulatory requirements may change over time and vary among firms. References to brokerage compensation practices are general in nature and may not apply to all firms or account types. Investment products involve risk, including the possible loss of principal. Margin trading involves additional risks and may not be suitable for all investors. Before opening or transferring an account, investors should review applicable account agreements, Form CRS, fee schedules, and product prospectuses, and consider consulting qualified financial, tax, legal, or other professional advisers regarding their individual circumstances.