How does a brokerage actually make money, and what does each part of it do, when buying stocks costs you nothing in fees?
Alpha · deepseek-v4-pro
The short answer: zero-commission trading removes the ticket charge, not the brokerage's revenue model. A brokerage is really several businesses sharing one customer relationship and one balance sheet. To see how it makes money, follow the money line by line.
I can't open filings this turn, so where I use specific figures they are the ones stated in the manuscript under review, not my own live verification.
The main businesses inside a brokerage
- Retail brokerage — the app, the account, order routing, margin lending, cash handling.
- Wealth and asset management — managed portfolios, funds, advice.
- Investment banking — underwriting IPOs and bond issues, M&A advice.
- Sales, trading and market making — pricing, liquidity, the firm's own trading.
- Research — analysis of companies and markets.
- Back office — clearing, settlement, custody, risk management, compliance.
Each earns differently.
1. Net interest income: the money you leave idle
Almost every account holds uninvested cash. The broker does not leave it in a drawer. It sweeps the cash into banks—often its own bank or partner banks—or into money market instruments, earns interest, and…
Beta · gpt-6-sol
I checked the two SEC filings. They support the explanation of *how* a brokerage earns money, but they expose a problem with the manuscript’s opening claim—and with Alpha’s conclusion.
A zero commission on a stock purchase does not mean trades bring in little revenue. For fiscal 2025, Robinhood reported $2.628 billion in transaction-based revenue out of $4.473 billion in total net revenue—about 59%. Its stock-related transaction revenue was $302 million, or about 7% of the total; options brought in $1.123 billion and crypto $901 million. The defensible distinction is “not chiefly from commissions on stock purchases,” not “mostly not from your trades.” Schwab’s mix differs: its $11.750 billion of net interest revenue was 49% of its $23.921 billion total. Neither firm’s mix establishes an industry-wide rule. (sec.gov)
Following the customer’s account inward gives a clearer map:
| Part of the firm | What it does | Where revenue can come from |
|---|---|---|
| Retail brokerage | Maintains accounts and routes trades | Commissions on products that carry them; payments for order flow…
Gamma · gemini-3.1-pro
I have reviewed the manuscript and verified several of the claims regarding international regulations and the Korean market using live web searches. Here is what I found:
1. International Regulations and Market Structure
* FCA PFOF Review: The manuscript claims the UK’s Financial Conduct Authority (FCA) is reviewing its position on Payment for Order Flow (PFOF) with a decision expected by the end of 2026. Verified. The FCA’s March 2026 Regulatory Priorities Wholesale Markets paper confirms a review of its PFOF position, with a decision or position expected by the end of Q4 2026 (fca.org.uk).
* MiFID II Research Unbundling: The manuscript claims that 2018 European rules required pricing research separately from trading, and that this was later relaxed. Verified. The 2018 MiFID II directive mandated this "unbundling." However, the 2024 amendments (part of the MiFIR Review) introduced a significant relaxation, allowing investment firms to once again bundle research costs with execution commissions for research covering small and mid-cap issuers (those with a marke…
Researcher · gpt-6-luna
Research check
The main factual correction is the phrase “Mostly not from your trades.” Robinhood’s 2025 filing reports $2.628 billion in transaction-based revenue out of $4.473 billion in total net revenue—about 59%. That does not mean it charged customers commissions on stock purchases: Robinhood says transaction revenue comes from routing orders, including options, crypto and equities. Its filing says $2.326 billion of that transaction revenue came from routing orders to market makers. So the defensible distinction is “not mainly from commissions on stock purchases,” rather than “mostly not from trading.”
Sources: Robinhood’s 2025 Form 10-K/A and auditor’s discussion of transaction-based revenue.
Schwab is a useful contrast, not proof of an industry-wide pattern. Its 2025 Form 10-K reports $11.750 billion in net interest revenue out of $23.921 billion in net revenue—about 49%—and $6.506 billion in asset-management and administration fees. It also reports that net interest re…
The Arbiter · gpt-6-sol
The voices agree on the basic map: the account and trading app connect to cash handling, lending and order routing; larger firms may also earn fees from managing assets, corporate finance and trading desks. Research and the back office support those activities, though they are not necessarily separate profit centers.
The important disagreement is about the opening line, “Mostly not from your trades.” Alpha reads it as “not from a commission on your stock purchase.” Beta objects that readers will hear “not from trading activity at all.” The filing supports Beta’s distinction: Robinhood reported $2.628 billion in transaction-based revenue out of $4.473 billion in total net revenue for 2025. Schwab’s different mix—$11.750 billion of net interest revenue out of $23.921 billion—shows why neither example should be made into a rule for every broker. Those are figures for particular firms and a particular year, not amounts paid by the reader who made one free stock purchase. (sec.gov)
The Researcher also identified a more precise way to discuss interest: Schwab’s 3.47% yield on interest-earning as…
The Arbiter's Final Verdict · gpt-6-sol
Verdict
The premise holds, but the manuscript’s opening needs a narrower claim. A zero-fee stock purchase means the broker charged no commission for *that purchase*. It does not mean the account or the firm earns nothing from trading. Robinhood’s 2025 transaction-based revenue was $2.628 billion of $4.473 billion total net revenue—about 59%. Much of that came from options, crypto and order routing, not stock-purchase commissions. Schwab had a different mix: $11.750 billion of its $23.921 billion 2025 net revenue was net interest revenue. Neither mix is a rule for all brokerages.
Following the account inward explains what each part does:
| Part of the firm | What it does | How it can earn |
|---|---|---|
| Retail brokerage | Maintains the account and routes orders | Commissions on some products; payment for order flow where permitted |
| Cash and lending | Handles uninvested cash, makes margin loans and lends eligible securities | Interest income, margin interest and securities-lending revenue |
| Wealth and asset management | Gives advice, manages portfolios and runs funds | Fees based on assets or administration |
| Investment banking | Helps comp…
