You can place a stock trade with a $0 commission and still pay for the service.
The cost is usually built into how orders are routed and how cash is managed.
Understanding those mechanics makes the revenue model easier to evaluate.
At a glance: the main revenue streams
- Order routing payments: Brokers can be paid for sending orders to specific venues.
- Interest spreads: Brokers earn the difference between rates on customer cash and their own funding rates.
- Margin lending: Borrowing to trade creates interest revenue.
- Securities lending: Lending customer-held shares can generate fees.
- Subscriptions and add-ons: Some features are sold as monthly plans.
What “commission-free” usually means
“Commission-free” typically means there is no explicit per-trade commission for certain products, often U.S. listed stocks and exchange-traded funds (ETFs).
It does not mean trading has no costs.
Trading still has spreads, slippage, and market impact, and those costs can be larger than a small fixed commission.
For the mechanics of execution, see Order Types.
How order routing can produce revenue
Many retail orders do not execute on a public exchange.
Instead, a broker can route an order to a market maker or another venue that fills it.
In some structures, the venue pays the broker for that order flow.
This is usually discussed as payment for order flow (PFOF).
The tradeoff is structural: payments can create an incentive to route based on broker revenue rather than execution quality.
In the United States, brokers are still subject to “best execution” obligations, which are designed to limit that conflict.
How interest on customer cash becomes broker income
Broker accounts often hold uninvested cash.
A broker can place that cash into bank sweep programs or short-term instruments.
If the broker earns one rate on the cash and credits a lower rate to the customer, the difference becomes revenue.
This is often called net interest margin.
It tends to matter more when interest rates are higher and cash balances are large.
How margin lending and leverage add revenue
If a customer borrows against a portfolio to buy more securities, the broker charges interest.
That interest rate is typically higher than the broker’s own cost of funds.
The spread is a revenue source, and it also compensates the broker for credit risk.
Margin lending can also increase forced liquidation risk in fast market moves.
How securities lending can monetize customer portfolios
Some brokers lend shares held in customer accounts to other market participants.
This is common in short selling, where a borrower needs shares to deliver into the market.
The borrower pays a lending fee, which can be shared between the broker and the customer depending on program terms.
The tradeoff is counterparty and operational: the broker manages recalls, collateral, and settlement issues.
How subscriptions and add-ons fit into the model
Some commission-free brokers sell features as subscriptions.
Examples include enhanced data, advanced orders, research tools, or bundled services.
This model looks more like software pricing than traditional brokerage commissions.
Practical implications for how costs show up
Commission-free pricing changes where costs appear, not whether costs exist.
In many cases, a user sees cost as a slightly worse execution price, lower cash interest, or higher margin rates.
Those costs can be harder to compare than a fixed commission.
This is one reason regulators focus on disclosures and execution reporting.
Tradeoffs, risks, and limitations
Commission-free brokers can introduce several tradeoffs:
- Execution quality vs. routing revenue: The routing incentive can conflict with price improvement.
- Cash yield differences: Cash sweep rates can vary widely across brokers.
- Leverage risk: Margin products increase loss risk and can trigger liquidations.
- Complex disclosures: Revenue sources can be fragmented across multiple programs.
The size of these tradeoffs depends on account behavior, product mix, and jurisdiction.
Regional and regulatory differences
Rules vary by jurisdiction.
In the United States, PFOF is legal with disclosures, while some other jurisdictions restrict or prohibit it.
Even within one country, standards can differ by asset class and trading venue design.
Common questions
Is commission-free trading actually free?
The commission line item can be zero while other costs exist. Costs often appear in execution quality, spreads, cash yield, or margin rates.
Do all commission-free brokers use PFOF?
No. Some brokers rely more on interest spreads, subscriptions, or securities lending, and routing practices vary by product and venue.
Why do spreads matter more than commissions in some markets?
Spreads and slippage are paid on every trade through the execution price. In fast or thin markets, those costs can exceed a small fixed commission.
