Brokerages make money in several ways at once, and most of them keep running even when stock trades cost you nothing. The three largest streams at a typical firm are interest earned on customers’ uninvested cash, payment for order flow from wholesale market makers, and interest on margin loans. Smaller streams fill out the picture: fees on options and futures, securities lending, advisory fees on managed accounts, revenue sharing with fund companies, and a long tail of account service charges. If you’ve wondered how do brokerages make money when the headline price of a trade is zero, the short answer is that the price moved rather than disappeared.
Interest on Your Uninvested Cash
For many large firms, this is the single biggest revenue line. When you deposit money, collect dividends, or sell a position, the cash lands in a “sweep” arrangement. The broker pools uninvested cash across customers and either deposits it at partner banks or invests it in short-term instruments like Treasury bills and money market funds.1Investor.gov. Cash Sweep Programs for Uninvested Cash in Your Investment Accounts – Investor Bulletin The firm earns the full prevailing rate on that pool and passes along only a fraction to you. The gap is net interest margin, and across billions of dollars in deposits it adds up.
The size of this spread tracks the Federal Reserve. Near-zero rates squeeze it; higher rates widen it considerably, as happened from 2022 onward. Some firms responded by offering higher-yield sweep options, but the broker still keeps a meaningful cut. If you carry a large cash balance, check your sweep rate against what a standalone high-yield savings account or money market fund would pay you directly.
Payment for Order Flow
When you place a trade through a zero-commission app, the broker doesn’t absorb the cost. It routes your order to a wholesale market maker instead of straight to a public exchange. The market maker pays the broker a fraction of a cent per share for the right to execute the trade. That payment, called payment for order flow (PFOF), is how free trading gets funded. Market makers profit from the spread between bid and ask and are willing to share a sliver of it with brokers in exchange for a steady stream of retail orders.
Per-share payments are tiny, but the math works at scale. For brokerages with millions of active users, PFOF produces real revenue. At larger, more diversified firms it makes up a much smaller share of the total, because interest income and other streams dwarf it.
Federal rules require disclosure. SEC Rule 606 of Regulation NMS makes every broker publish quarterly reports showing where it routes customer orders, how much it pays or receives from each venue, and the nature of any profit-sharing with market makers.2eCFR. 17 CFR 242.606 – Disclosure of Order Routing Information Rule 607 requires the broker to tell you in writing, when you open the account and annually after that, whether it receives PFOF, what the compensation looks like, and how it decides where to route your orders.3eCFR. 17 CFR 242.607 – Customer Account Statements
Margin Lending
Brokerages are also lenders. When you trade on margin, the firm loans you money to buy securities and uses the holdings in your account as collateral. The interest you pay goes straight to the broker’s bottom line, and it keeps accruing whether the market rises or falls.
Rates vary widely. As of early 2026, most major brokerages charge roughly 10% to 12% annually on typical retail balances under $300,000. Discount-focused platforms can run significantly lower, sometimes near 5% on comparable balances, and rates generally drop as the loan gets larger.4Interactive Brokers. US Margin Loan Rates Comparison Federal Reserve Regulation T caps initial borrowing at 50% of the purchase price of eligible securities.5FINRA. Margin Regulation
Margin Calls and Forced Liquidation
FINRA requires that you maintain at least 25% equity in the account after the purchase, and most brokers set their own house threshold at 30% to 40%. If your holdings drop and your equity falls below the maintenance level, the broker issues a margin call asking you to deposit funds or sell. Here is the part people miss: the firm can liquidate your positions to cover a shortfall without calling you first and without waiting for a response.6U.S. Securities and Exchange Commission. Understanding Margin Accounts Most margin agreements grant that right in the fine print.
Tax Treatment of Margin Interest
Margin interest may be deductible as an investment interest expense. You report it on IRS Form 4952, and the deduction is capped at your net investment income for the year, with any excess carrying forward.7Internal Revenue Service. About Form 4952, Investment Interest Expense Deduction That doesn’t make margin cheap, but it softens the blow if you’re paying thousands in interest.
Commissions That Still Exist
Zero-commission trading applies to plain stock and ETF orders at most major platforms. Step outside those products and per-trade fees reappear.
- Options usually carry a per-contract fee, often in the $0.50 to $0.65 range, though a few platforms have begun to eliminate it.
- Futures are priced per contract per side of the trade, plus exchange and regulatory fees the broker passes through.
- Municipal and corporate bonds trade with a markup baked into the price or a flat fee per bond; because bond markets are less transparent than stock exchanges, the effective cost can be hard to see.
- Foreign stocks and currency conversions trigger additional fees, often a small percentage of transaction value.
More complex instruments carry higher clearing costs and more risk for the firm, which is why these fees have held on while stock commissions collapsed.
Securities Lending
If you own shares that short sellers want to borrow, your broker can lend them out and keep part of the income. In a fully paid securities lending program, the firm borrows shares from your account, lends them to a third party (typically a short seller or institution), and collects interest on the loan, with the borrower posting collateral at or above the value of the borrowed shares.8Charles Schwab. Getting Income from Fully Paid Securities Lending
The lending rate depends on demand for the specific shares. Heavily shorted or hard-to-borrow names command higher rates; a widely held blue chip earns almost nothing. The interest is split between you and the broker. At Schwab, the standard split is 50/50, though terms vary by firm.8Charles Schwab. Getting Income from Fully Paid Securities Lending From the broker’s side, the shares were already sitting in customer accounts, so the revenue is close to free.9Fidelity. Fully Paid Lending
Advisory and Management Fees
Many brokerages run managed accounts and robo-advisory services alongside the self-directed platform. These charge an annual fee based on assets under management, typically 0.25% to 0.50% for automated portfolios and more when a human advisor is involved. On a $100,000 portfolio, that’s $250 to $500 a year in ongoing fees.
This stream scales with account size, not trading activity. A client who parks a large balance in a managed account and never touches it still generates steady revenue. As commission income has evaporated, advisory services have grown into a central business line.
Revenue Sharing From Fund Companies
The list of mutual funds and ETFs on your broker’s platform isn’t neutral. Fund companies often pay for preferred placement, sometimes called shelf space fees: the provider pays to be included in the lineup, featured on recommended lists, or offered commission-free. Those costs tend to filter through to investors in slightly higher expense ratios on the funds themselves.
This is one of the conflicts of interest brokerages must disclose under SEC Regulation Best Interest. The required Form CRS asks firms to describe revenue sharing relationships and the incentives they create.10Securities and Exchange Commission. Instructions to Form CRS – Appendix B of Final Rule Some fund families, notably Vanguard, have historically refused to pay these fees, which is why their products have at times been excluded from certain platforms. If your broker prominently features a particular fund family, revenue sharing is a likely reason.
Account and Service Fees
The small charges add up across millions of accounts:
- Domestic outgoing wires generally cost $25 or more; international wires run higher.
- Transferring your account to another firm through the ACATS system often triggers a $50 to $100 fee from the firm you’re leaving.
- Requesting paper statements instead of electronic delivery can cost a few dollars a month.
- Some platforms run a freemium model, where basic access is free but advanced research tools, real-time data, or higher cash yields require a monthly subscription.
The ACATS fee works as an exit cost. It’s small enough that most people don’t fight it and large enough to create friction that keeps assets on the platform.
How to See What Your Broker Earns From You
Federal rules give you several ways to look. The Form CRS relationship summary, required under Regulation Best Interest, has to describe the firm’s principal fees, its conflicts of interest, and specific examples of how it earns money, including through proprietary products, third-party payments, revenue sharing, and principal trading.10Securities and Exchange Commission. Instructions to Form CRS – Appendix B of Final Rule Every brokerage must provide it, and it’s usually on the firm’s website.
For order routing specifically, the quarterly Rule 606 reports show which market makers get your orders and how much the broker is paid for sending them there.2eCFR. 17 CFR 242.606 – Disclosure of Order Routing Information Rule 607 requires the broker to explain its PFOF policies to you directly at account opening and annually after that.3eCFR. 17 CFR 242.607 – Customer Account Statements Reading these won’t change how your broker operates, but it will show you which revenue streams your account is feeding.
One boundary worth knowing before you leave this page: if your brokerage firm fails, the Securities Investor Protection Corporation (SIPC) covers up to $500,000 per customer in missing securities, with a $250,000 limit on cash claims.11Investor.gov. Investor Bulletin – SIPC Protection Part 1 – SIPC Basics SIPC does not protect you against investment losses or bad advice. It only applies when a member firm becomes insolvent and customer assets go missing.