Brokers make money through a mix of trading commissions, payment for order flow, bid-ask spreads, interest on the cash sitting in your account, margin loan interest, securities lending, advisory and wrap fees, mutual fund sales loads, and administrative account charges. A platform that advertises “zero-commission” trading has not stopped charging you; it has moved the charge somewhere less visible, most often to order routing revenue and the interest spread on your cash. Knowing where each dollar comes from is the only way to judge whether a broker is actually cheap.
Trading Commissions
Most major online brokers dropped commissions on U.S. stock and ETF trades in late 2019, when several large firms cut per-trade fees to zero within days of one another. Before that, discount brokers commonly charged a flat fee per trade, often in the three to seven dollar range. Commissions still apply to plenty of transactions: options contracts, futures, international equities, and orders handled by full-service brokers.
Federal securities rules require your broker to send you a written trade confirmation for every transaction disclosing any commission, markup, or other charge applied to the trade.1eCFR. 17 CFR 240.10b-10 – Confirmation of Transactions Read those confirmations. The disappearance of a visible commission line does not mean the trade was free.
Payment for Order Flow
When you place a stock order through a zero-commission broker, the broker often routes it to a third-party market maker instead of a public exchange. The market maker pays the broker a fraction of a cent per share for the right to execute your trade. This arrangement, called payment for order flow, is one of the largest revenue sources for retail-focused brokerages.
The SEC requires brokers to publish quarterly Rule 606 reports showing where they send orders and how much they receive from each venue.2U.S. Securities and Exchange Commission. Responses to Frequently Asked Questions Concerning Rule 606 of Regulation NMS Brokers also owe a best execution duty, meaning reasonable diligence to obtain the most favorable terms for your order under current market conditions.3FINRA.org. FINRA Rule 5310 Best Execution and Interpositioning
The costs of that duty being ignored can outweigh the savings from free trades. In 2020 the SEC charged Robinhood Financial with misleading customers about its order flow revenue and failing to meet its best execution duty. Robinhood customers received inferior trade prices that in total cost them $34.1 million, more than they had saved on commissions, and Robinhood paid a $65 million civil penalty to settle.4U.S. Securities and Exchange Commission. SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution
Bid-Ask Spreads and Markups
When a broker acts as a dealer, buying a security into its own inventory and then selling it to you, the firm earns a markup built into the price. You see an ask price to buy and a bid price to sell, and the broker keeps the difference. There is no separate line item; the cost is inside the price.
Spread revenue matters most in less transparent markets: municipal bonds, corporate bonds, and over-the-counter stocks, where no centralized exchange publishes real-time prices. FINRA’s fair pricing rule makes it a violation for a broker-dealer to charge a price not reasonably related to a security’s current market value, or to charge an unreasonable commission.5FINRA.org. FINRA Rule 2121 Fair Prices and Commissions Brokers found to have charged excessive markups face fines and orders to refund the overcharge to affected clients.
Interest on Your Uninvested Cash
Cash sitting in your brokerage account does not sit idle. Your broker sweeps it into interest-bearing bank accounts or money market funds, earns one rate from the receiving bank, pays you a lower rate, and keeps the spread. Across millions of accounts the difference is a major revenue line, and some brokers have been scrutinized for paying near-zero rates on swept cash while earning significantly more.
If your broker uses a multi-bank sweep program, your cash is distributed across several FDIC-insured banks. Standard FDIC insurance covers $250,000 per depositor, per insured bank, for each ownership category.6Federal Deposit Insurance Corporation. Your Insured Deposits Spreading cash across multiple banks extends your total coverage, but any swept deposits at a bank where you already hold accounts in the same ownership category are combined for insurance purposes. Check the sweep destinations against your personal banking.
Margin Lending
Margin lending lets brokers earn interest on money they loan you to buy more securities. Under Federal Reserve Board Regulation T, a broker can lend you up to 50 percent of the total purchase price of a stock when you open a new margin position.7FINRA.org. Margin Regulation Interest is typically charged at a rate several percentage points above a benchmark like the federal funds rate, and the larger your balance, the more the broker collects.
The risk falls on you. If your positions decline, the broker can issue a margin call requiring you to add cash or sell holdings. If you do not act quickly enough, the broker can liquidate positions without your approval.
Securities Lending
Brokers also lend shares held in your account to other market participants, mainly short sellers and institutions that need to borrow stock for settlement or hedging. The borrower pays a loan fee, and the broker keeps a portion. In margin accounts, brokers generally have the right to lend your shares without asking. Some firms run fully paid lending programs for shares held in cash accounts, where you opt in and receive a share of the revenue.
Fees depend on how hard the stock is to borrow. Widely held, heavily traded companies command low fees; smaller or heavily shorted names generate much higher lending income. Most retail investors never see this activity, but it is a meaningful profit source for brokers with large client asset bases.
Advisory and Wrap Fees
Many brokerage firms also act as investment advisers, charging an ongoing fee based on a percentage of assets under management. Rates typically range from about 0.25 percent for basic robo-advisory services up to around 2 percent for personalized human advice. The SEC has indicated that advisory fees above 2 percent may be viewed as excessive unless the adviser clearly discloses that the rate is higher than the industry norm.8U.S. Securities and Exchange Commission. Regulation of Investment Advisers by the U.S. Securities and Exchange Commission
A firm that provides investment advice for compensation is regulated under the Investment Advisers Act of 1940 and owes you a fiduciary duty. Section 206 prohibits advisers from engaging in fraudulent or deceptive practices, which courts have interpreted as requiring advisers to act in their clients’ best interest and disclose all material conflicts.9GovInfo. Investment Advisers Act of 1940
Some brokerages offer wrap fee programs that bundle advisory services, trade execution, custody, and reporting into a single asset-based charge. Billing is simpler, but the total cost can be higher than paying for each service separately, especially if you do not trade often. Wrap fees generally range from around 0.40 percent to 1.15 percent, with smaller accounts paying the higher end.
Mutual Fund Sales Loads
Buying or selling shares of certain mutual funds through a broker can trigger a sales load, a percentage-based charge that compensates the broker for the transaction. Front-end loads come out at purchase; back-end loads, sometimes called deferred sales charges, hit at sale. FINRA Rule 2341(d) prohibits brokers from selling mutual funds with excessive sales charges and sets limits that vary depending on whether the fund also charges ongoing asset-based fees.10FINRA.org. Mutual Funds Front-end loads commonly fall in the 3 to 6 percent range. No-load funds carry no sales charge and are widely available.
Account, Inactivity, and Transfer Fees
Beyond trading, brokers collect administrative fees that produce steady income regardless of market conditions:
- Annual account maintenance fees, often $30 to $75, though many larger brokers waive them once your account meets a minimum balance.
- Inactivity fees when you go a stretch without trading, which can total $50 to $200 per year depending on the firm’s schedule.
- Account transfer fees when you move your account to a different broker through the Automated Customer Account Transfer System, commonly $75 to $125 per full transfer, charged by the outgoing firm.
Not every broker charges all of these, and many have dropped maintenance and inactivity charges to stay competitive. Before you open an account, read the fee schedule; it is a required disclosure and will tell you what recurring costs you face.
Regulatory Surcharges Passed Through
Two small regulatory fees are assessed on securities transactions and often passed through to investors. The FINRA Trading Activity Fee in 2026 is $0.000195 per share for equity securities, capped at $9.79 per trade.11FINRA.org. FINRA Fee Adjustment Schedule The SEC Section 31 transaction fee is set at $138.10 per million dollars of covered sales for fiscal year 2026.12U.S. Securities and Exchange Commission. Fiscal Year 2026 Annual Adjustments to Registration Fee Rates
On a typical retail trade these amount to fractions of a penny per share and rarely total more than a few cents. They show up as line items on your confirmations. Some brokers absorb them; others pass them straight through.
How Brokerage Costs Affect Your Taxes
Commissions you pay when buying a security are added to the purchase price to form your cost basis, and commissions on a sale reduce your net proceeds. A higher basis means a smaller taxable gain or a larger deductible loss when you sell.13Internal Revenue Service. Topic No. 703, Basis of Assets This applies to stocks, bonds, mutual funds, and other investment assets.
Investment advisory fees, account maintenance charges, and custodial fees were once deductible as miscellaneous itemized deductions on your federal return. That deduction was suspended starting in 2018, and legislation enacted in 2025 permanently eliminated it. You cannot deduct advisory fees, account maintenance fees, or similar investment-related expenses against your federal income tax, which is one more reason to keep these costs low from the start.