Broker Revenue Models: How Brokers Make Money
Direct answer: Brokers generate revenue through multiple mechanisms that replaced or supplemented visible trading commissions: payment for order flow, net interest income on customer cash held in sweep accounts, margin lending, securities lending from customer holdings, and subscription or premium services.
The shift from visible commissions to multi-stream revenue
For most of U.S. brokerage history, the question of how brokers made money had a simple answer: commissions. When you bought or sold a stock, the broker charged a visible fee, typically a flat amount per trade or a percentage of the transaction value. That fee was the primary revenue engine, and it was transparent.
That model changed substantially in October 2019, when Schwab eliminated stock and ETF trading commissions and most major competitors followed within days. The elimination of visible commissions did not eliminate broker revenue. It shifted where that revenue comes from and made it less visible to customers. The business model became more complex, more dependent on scale, and more intertwined with interest rates and customer behavior than it had been under the old commission model.
The result is that today's zero-commission broker operates what is, in effect, a financial services conglomerate: a brokerage, a bank, an asset manager, and in some cases a subscription platform, all bundled into a single account relationship. Understanding the revenue streams is not just an academic exercise. It shapes how a broker designs its products, what trade-offs it makes between customer outcomes and its own economics, and what regulatory risk it carries.
Payment for order flow
Payment for order flow (PFOF) is the practice of routing customer orders to specific market makers or trading venues that pay the broker for that order flow. The market maker profits by trading against that order flow at a favorable spread; the broker receives cash per share or per contract in exchange for the routing. The customer's order is executed at or slightly better than the National Best Bid and Offer (NBBO), satisfying the broker's best execution obligation, but the customer does not share in the payment the broker received.
PFOF is particularly significant for options orders, where payments per contract are larger than for equities. Robinhood has historically earned a larger share of its PFOF revenue from options than from equities, a fact disclosed in its SEC Rule 606 reports. Market makers including Citadel Securities and Virtu Financial are among the largest payers of PFOF to retail brokers.
The regulatory trajectory of PFOF in the U.S. is uncertain. The SEC under Chair Gary Gensler proposed a significant overhaul of equity market structure in 2022, including restrictions that would have substantially limited or banned PFOF for equities. Those proposals faced significant industry opposition and were not finalized. The UK, Canada, and several other jurisdictions have banned PFOF. Whether the U.S. eventually follows is a live question as of 2026.
For investors, the relevant question is not whether PFOF exists but whether the price improvement they receive on executions fully offsets the spread capture by the market maker. Academic and regulatory research on this has produced mixed conclusions. Large orders and illiquid stocks are generally areas where the PFOF model's trade-offs are most visible.
Cash sweep programs and net interest income
When a customer holds uninvested cash in a brokerage account, that cash typically moves into a "sweep" vehicle, either a money market fund or an affiliated bank deposit account. The broker earns net interest income: the difference between the rate it earns on those deposits and the rate it pays customers.
For large brokers, particularly those with affiliated banking operations like Charles Schwab, this is the largest single revenue stream. Schwab's net interest revenue represented approximately 50-60% of its total net revenues in peak rate years. The economics depend heavily on the interest rate environment. When short-term rates are near zero, as they were from 2020 to 2022, the sweep spread compresses sharply and net interest income falls. When rates rise, the spread widens and net interest income grows substantially.
The rate offered to customers in sweep accounts varies widely. Some brokers, particularly those with affiliated banks, have maintained rates substantially below prevailing money market rates, keeping the spread for themselves. Customers who want competitive rates on idle cash must often manually move those funds into a higher-yielding money market fund rather than relying on the default sweep. Fidelity's default sweep, for example, has historically offered competitive money market rates; Schwab's default bank sweep has not.
This asymmetry attracted regulatory and litigation attention in 2024 and 2025 when short-term rates were elevated. Investors who understood the sweep rate dynamics and moved cash proactively captured substantially more yield on idle capital than those who accepted the default.
Margin lending
Margin lending allows customers to borrow against the securities in their account, using those securities as collateral. The broker charges interest on the borrowed balance. The interest rate charged is typically expressed as an annualized rate and can range from a few percent to over 10%, depending on the broker and the amount borrowed.
The broker's economics are favorable: it borrows money at institutional rates and re-lends it at retail rates, keeping the spread. The outstanding loan book is also collateralized by securities, which provides credit protection. Margin lending revenue tends to be pro-cyclical: customers are more willing to borrow in rising markets and reduce or eliminate margin balances in volatile periods or declining markets.
For the largest brokers, margin interest represents a meaningful but secondary revenue stream compared to net interest income from sweep programs. For smaller, more trading-focused brokers like Robinhood, margin lending through products like Robinhood Gold represents a more significant share of revenue relative to assets under custody.
Securities lending
Securities lending is the practice of lending shares held in customer accounts to short sellers, who pay a borrowing fee to access those shares. The broker acts as the intermediary, receiving the lending fee from the short seller and typically retaining all or most of it. Customers whose shares are lent generally receive no direct compensation unless the broker has a specific fully paid lending program that shares revenue with account holders.
Short sellers need to borrow shares to complete a short sale. The fee they pay depends on the availability of the stock: "easy to borrow" shares (widely held, abundant supply) carry low fees, while "hard to borrow" shares in high short-selling demand can carry annualized borrowing fees in the tens of percent. Brokers with large customer asset bases have more inventory to lend and therefore more securities lending revenue.
Some brokers offer fully paid securities lending programs that share a portion of the lending revenue with the account holder. Robinhood launched such a program. The revenue share terms and the tax treatment of lending income (it is treated as ordinary income, not qualified dividends, which has tax implications for taxable accounts) are factors worth understanding before enrolling.
Subscription and premium tiers
Several retail brokers have introduced subscription or premium tier products that bundle additional services for a monthly or annual fee. Robinhood Gold is the most prominent example. Fidelity and Schwab have not pursued this model in the same way, relying instead on their scale and multi-product revenue streams.
Premium tier products typically bundle a combination of: higher instant deposit limits, access to margin borrowing at preferential rates, higher cash sweep rates, Level II market data, premium research, and in some cases analytical tools or managed portfolio features. The fee provides a recurring, predictable revenue stream that is not correlated with interest rates or market activity the way sweep income and PFOF are.
For brokers competing on the "free" tier, subscription revenue also functions as a customer segmentation tool: the premium subscriber has revealed a willingness to pay and is statistically more engaged and less likely to churn than the free-tier customer.
Regulatory disclosure requirements: SEC Rule 606
SEC Rule 606 requires broker-dealers to publish quarterly reports disclosing their order routing practices and any payment for order flow received. These reports identify the venues to which orders were routed and aggregate the payments received from those venues. They are publicly available on broker websites and allow investors and researchers to assess whether routing decisions appear to prioritize payment revenue over execution quality.
The reports are structured and somewhat technical, but for an investor who wants to understand a specific broker's PFOF practices in detail, the Rule 606 disclosures are the primary source. Brokers are also required to disclose PFOF practices and potential conflicts of interest in their Form ADV filings (for investment advisers) and in customer account documentation.
Rule 606 was amended in 2018 to require additional disclosure for institutional customers who request it. The SEC's 2022 equity market structure proposals would have substantially expanded disclosure and modified order routing requirements, but those rules were not finalized as of mid-2026.
Broker profiles in this series
This hub covers broker revenue models at a structural level. The following pages apply this framework to specific brokers, using their public disclosures and financial reporting to trace how each company actually generates its revenue:
- How Robinhood Makes Money: A detailed look at Robinhood's PFOF-led model, Gold subscription, cash sweep rates, and how its revenue mix has shifted since IPO.
- How Fidelity Makes Money: Fidelity's diversified model across investment management, brokerage, retirement recordkeeping, and wealth management, including its no-PFOF policy contrast with Robinhood.
- How Charles Schwab Makes Money: Schwab's bank-centric model, where net interest income dominates, and how the TD Ameritrade acquisition changed its scale and revenue mix.
Frequently Asked Questions
How do brokers make money if they charge zero commissions?
Zero-commission brokers earn revenue through multiple non-commission streams. Payment for order flow (PFOF) is one: market makers pay brokers for the right to execute customer orders, profiting on the bid-ask spread. Net interest income on cash held in sweep accounts is another, often the largest stream for large brokers. Margin lending, securities lending, and subscription or premium tier fees contribute additional revenue. The elimination of visible commissions did not eliminate broker revenue; it shifted where that revenue comes from and made it less transparent to customers.
What is payment for order flow and is it legal?
Payment for order flow (PFOF) is the practice of brokers routing customer orders to specific market makers or trading venues in exchange for cash payments. It is legal in the United States but is subject to disclosure requirements under SEC Rule 606, which requires brokers to publish quarterly reports showing where orders were routed and the revenue received. The practice was banned in the UK, Canada, and Australia on the grounds that it creates a conflict of interest between the broker and the customer. The SEC has discussed restricting or banning PFOF in the U.S. but has not done so as of mid-2026.
What is a cash sweep program and why does it matter to investors?
A cash sweep program automatically moves uninvested cash in a brokerage account into an interest-bearing vehicle, typically a bank account affiliated with the broker or a money market fund. The broker earns a spread between the rate it pays customers and the rate it earns on that cash. Sweep rates vary widely between brokers. Investors who hold significant cash in brokerage accounts should compare the rate offered in the default sweep against alternatives. Schwab's sweep rates attracted regulatory scrutiny and class-action litigation in 2024-2025 because default rates were substantially below prevailing money market rates while Schwab earned significant net interest income on that spread.
Can a broker lend out shares I own without my permission?
Brokers may lend shares held in margin accounts without explicit permission under standard margin agreement terms, because holding securities on margin means the broker has a lien on those assets. Shares held in a cash account generally cannot be lent without a specific securities lending agreement, though some brokers include broad consent in their account agreements. If your broker participates in a fully paid securities lending program, you may be able to share in the income earned from lending your shares. Reviewing your account agreement's terms on securities lending tells you what your broker is authorized to do with your holdings.
What does SEC Rule 606 require brokers to disclose?
SEC Rule 606 requires brokers to publish quarterly reports disclosing where they routed non-directed customer orders and any payment for order flow received from those venues. The reports cover stocks and options separately and must identify the top venues by order volume. Rule 606 was amended in 2018 to add disclosure requirements for institutional customers on request. These reports are publicly available on broker websites and allow investors to assess whether a broker's routing practices prioritize execution quality or payment revenue.
How does margin lending generate revenue for brokers?
Margin lending generates revenue through the interest charged on money borrowed by customers against their portfolio. The broker borrows at a lower institutional rate and lends at a higher retail rate, keeping the spread. Margin interest rates at retail brokers typically range from a few percent to over 10% annually, depending on the amount borrowed and the broker's pricing structure. Margin lending revenue is sensitive to interest rate levels and to customer willingness to borrow, which tends to increase in bull markets and decline in volatile periods.
Are brokerage subscription or premium tiers worth the cost?
Whether a brokerage subscription tier is worth its cost depends on what you actually use. Robinhood Gold, for example, offers higher instant deposit limits, access to margin borrowing, larger cash sweep rates, research tools, and Level II market data for a monthly fee. If you use margin, receive a materially better sweep rate, or value the research tools, the fee may be justified. If you keep little cash at the broker and don't use margin, the benefits are narrower. Evaluating the fee against the specific benefits you would realistically use is the right framework.