Do stock brokers make commission?

Do stock brokers make commission?

Do stock brokers make commission? This question is central for anyone placing trades in U.S. equities or using a platform that offers both stocks and crypto. In short: do stock brokers make commission depends on the broker type and services used. Many retail online brokers now offer $0 commissions for standard stock and ETF trades, while full-service brokers, advisory accounts and some special services still charge explicit commissions or asset-based fees. This guide explains how commissions worked historically, the different fee models today, how so-called “commission-free” platforms still earn revenue, and how to choose a broker that fits your needs.

Definition and scope

Do stock brokers make commission? Start with clear definitions.

• Stock broker: a licensed broker-dealer or a registered representative that executes buy and sell orders in securities (stocks, ETFs, options) on behalf of retail or institutional clients. Brokers vary from full-service advisory firms to discount online brokers and market-making firms.
• Commission: a direct charge applied to a trade or account for execution or advisory services. Commissions can be a flat fee per ticket, per-share charges, percentage of trade value, or part of a larger fee (AUM, subscription).

Scope notes:

• Retail vs institutional: retail investors typically face retail pricing models (flat fees, per-share, or $0 trade models). Institutional clients negotiate separate execution and commission arrangements.
• Crypto platforms vs securities brokers: platforms that offer crypto may use different fee models (maker/taker, spread, withdrawal/network fees). When a traditional broker offers crypto, it may adopt a different fee structure than for equities. For crypto trading and custody or wallet recommendations, consider Bitget products when seeking exchange or wallet options.

Historical context of broker commissions

Do stock brokers make commission? Historically, yes — commissions were the primary way brokers earned income. For much of the 20th century, brokers charged clear per-trade commissions or percentage fees. Commissions were often substantial relative to trade size; retail trades could carry flat-dollar fees or percentage rates tied to transaction value.

Several trends changed the landscape:

• Electronic trading: automation and electronic order routing dramatically lowered the marginal cost to execute trades.
• Increased competition: new discount brokers and online trading platforms undercut traditional commission schedules.
• Market structure changes: the rise of market makers, automated trading firms, and new execution venues shifted where execution revenue and spreads accrued.

The result: a steady decline in explicit commission rates that culminated in many major retail brokers eliminating standard commissions for stocks and ETFs in the late 2010s and early 2020s. Yet broker revenue models diversified, introducing or emphasizing other revenue sources.

Types of brokers and typical fee models

Do stock brokers make commission? The answer depends heavily on broker type.

Full-service brokers

Full-service brokers typically provide advice, personalized portfolio management, research, and client service. These firms often charge:

• Commissions per trade or bundled trade fees for certain account types.
• Asset-under-management (AUM) fees (e.g., 0.5%–2.0% annually) for managed portfolios.
• Additional fees for planning, custody, or special services.

In exchange, clients receive tailored advice, access to human advisors, and a wider range of wealth services. For many clients, higher fees accompany a higher-touch experience.

Discount / online brokers

Many discount and online brokers now offer $0 commissions on U.S. stock and ETF trades. However, they may still charge for:

• Options trades (per-contract fees or per-trade options fees).
• Broker-assisted trades or special order types.
• Margin interest, transfer or account fees, and premium data subscriptions.

These brokers often rely on other revenue streams (see later) and compete on low explicit fees plus technology and trading tools.

Robo‑advisors

Robo‑advisors automate portfolio construction and rebalancing using algorithms. They typically charge an annual percentage of assets under management (AUM), commonly in the range of about 0.15%–0.50%.

Robo fees cover portfolio management, rebalancing, and often tax-loss harvesting. They generally do not charge per-trade commissions to the client; trading costs may be absorbed into the service or reflected in underlying fund expenses.

Institutional brokers / market makers

Institutional brokers and market makers operate under different economics. Institutional clients often negotiate execution fees, pay for algorithmic execution, or use a principal arrangement where the broker acts as a dealer and earns markups/markdowns.

Institutional fee arrangements can include soft-dollar agreements, execution-only rates, or bundled research and execution costs. Market makers can profit from spreads and by receiving payment for order flow from brokers that route retail orders their way.

Commission structures and examples

Do stock brokers make commission? When they do, this can take several forms:

• Per-ticket (flat fee): A fixed dollar amount per trade (e.g., historically $4.95–$19.95). Many retail flat-fee models have been replaced by $0 trades for stocks/ETFs.
• Per-share: A small fee per share traded (e.g., $0.005–$0.01 per share in older models), often used for very small or high-volume trades.
• Per-contract (options): Options are commonly charged per contract (e.g., $0.25–$0.75 per contract) plus a per-trade surcharge.
• Percentage of trade value: Less common for simple trades, more common for large or institutional trades (historically 1%–2% for some services).
• Asset-based advisory fees: Ongoing AUM fees for managed accounts or advisory relationships (typical ranges 0.15%–2.0%).

Modern retail practice: many platforms list $0 for online stock and ETF trades, while options still often carry per-contract fees, and broker-assisted trades or foreign securities typically have explicit fees.

“Commission-free” trading — how brokers still make money

Do stock brokers make commission if a platform advertises “commission-free” trades? Yes and no — retail equity trades may show $0 commissions, but brokers still earn revenue through several other channels.

Payment for order flow (PFOF)

Payment for order flow is a common revenue source. Brokers route retail orders to market makers who execute the trades. In return, those market makers pay the broker a small fee for the order flow. This can help subsidize $0 commissions.

PFOF can affect execution quality because market makers may execute orders internally, capture the spread, or use internal liquidity pools. Regulations require brokers to disclose order routing and execution quality. As of June 30, 2024, according to SEC and industry disclosures, PFOF remained a material revenue source for many U.S. retail brokers.

Interest on uninvested cash and sweep accounts

Brokers hold uninvested cash in client accounts. That cash is often swept into interest-bearing instruments or bank accounts where brokers earn interest. They may pass a portion of interest to clients or keep most of it. The difference between what brokers earn and what they pay clients is another revenue stream.

Securities lending and margin interest

Brokers lend securities held in customer accounts to short sellers and receive lending fees. They also charge interest on margin loans. These activities are significant profit centers, especially in rising margin activity periods.

Premium products and service fees

Brokers offer premium tiers, data subscriptions, research packages, and managed accounts for additional fees. Mutual funds may carry loads and 12b‑1 fees. Broker-assisted trades and account transfers typically incur charges.

Execution spreads and markups

When brokers act as principal or route to dealers with wider spreads, the execution price may embed a markup or markdown. This is an implicit cost that functions similarly to a commission.

Other fees and costs to watch beyond commissions

Even if a broker advertises $0 commission for stock trades, other fees can reduce returns. Common non-commission costs include:

• Exchange and regulatory fees: Small pass-through fees from exchanges or regulators may appear on trade confirmations.
• Account maintenance fees: Some accounts charge flat or percentage-based maintenance fees.
• Inactivity or low-balance fees: Charged by some brokers for inactive accounts.
• Options contract fees: Per-contract fees or clearing fees for options trading.
• Mutual fund loads and 12b‑1 fees: Ongoing fees embedded in fund expense ratios or sales charges.
• Wire, transfer, and account close-out fees: Charges for moving assets between brokers.
• Slippage and execution quality costs: The difference between expected and actual fill price; can be meaningful for large or illiquid orders.

Read fee schedules and the customer agreement carefully. Execution quality reports and order routing disclosures provide insight into potential hidden costs.

Impact of commissions and other fees on investment returns

Do stock brokers make commission in ways that matter to returns? Yes. Trading costs reduce net returns in measurable ways.

Key points:

• Frequency matters: Frequent traders incur more explicit and implicit costs. High turnover can erode returns faster than modest, buy-and-hold strategies.
• Fee type matters: Fixed per-trade fees disproportionately hit small, frequent trades. A $5 per-trade commission on a $100 trade is a 5% hit, while the same $5 on a $10,000 trade is trivial.
• Hidden costs: PFOF, spreads, and poor execution degrade returns over time even when explicit commissions are $0.

Investors should estimate round-trip costs (entry + exit) and consider how often they trade. For long-term investors, AUM fees from advisory accounts may be the dominant expense; for active traders, execution quality and per-trade fees matter more.

Fee disclosure, regulation and investor protections

Regulation and disclosure frameworks help investors find and compare costs.

• SEC and FINRA: Broker-dealers must be registered and comply with SEC and FINRA rules, including best execution obligations and disclosures.
• Form CRS (Client Relationship Summary): Requires retail brokers to disclose services, costs, conflicts, and disciplinary history in a short standardized form.
• Order routing and execution quality reports: Brokers publish quarterly or monthly reports showing how they route orders and execution metrics.
• BrokerCheck and public records: FINRA’s BrokerCheck allows investors to research broker registration and disciplinary history.

As of June 30, 2024, according to SEC investor guidance and industry filings, regulators continued to emphasize transparency in order routing, PFOF disclosures, and best execution obligations.

How to compare and choose a broker

When deciding whether a broker suits you, compare more than headline commission rates. Consider these criteria:

• Fee schedules: Review explicit commissions, per-contract options fees, transfer charges, and account maintenance costs.
• Implicit costs: Review order routing disclosures, execution quality reports, and the broker’s use of payment for order flow.
• Services and support: Do you need financial advice, managed accounts, or is a self-directed platform sufficient?
• Margin and lending rates: Compare margin interest rates and borrowing terms.
• Product availability: Stocks, ETFs, options, mutual funds, fixed income, and crypto availability matter depending on your strategy.
• Platform tools and research: Trading platforms, mobile apps, educational content, and screening tools can be valuable.
• Safety and regulation: Confirm broker-dealer registration, SIPC coverage, and the broker’s regulatory record.

If you plan to trade crypto, note that exchanges and brokerages use different fee systems. For trading and wallet solutions within Web3, consider Bitget and Bitget Wallet for integrated products and custody options.

Crypto considerations (brief)

Do stock brokers make commission when they also offer crypto? Crypto fee structures differ from equities.

Common crypto fee models:

• Maker/taker fees: Percentage fees charged depending on whether you add or remove liquidity.
• Spread: Brokers or exchanges can quote a spread between buy and sell prices.
• Deposit/withdrawal/network fees: Network transaction fees and withdrawal charges apply.
• Custody fees: For institutional or custodial services, custodians may charge storage or insurance costs.

When a securities broker offers crypto, it may use a hybrid fee model—zero commissions on equities while charging spreads or transaction fees for crypto. For a crypto-first experience and wallet custody, Bitget and Bitget Wallet are purpose-built options to explore.

Practical examples and common scenarios

Do stock brokers make commission in ways that change real trade costs? Examples illustrate the impact.

Example 1 — Legacy commission vs $0 trade with PFOF:

• Legacy: A $1,000 buy with a $10 commission (round-trip $20) = 2.0% cost from commissions alone.
• Commission-free: $0 commission but routed with PFOF and a 0.02% effective spread cost = $0.20 round-trip on $1,000. Execution quality and slippage could add more. Net explicit commission is $0, but implicit costs and execution quality matter.

Example 2 — Active options trader:

• Options: Per-contract fees of $0.65 plus $0.65 closing per contract for a round-trip of $1.30 per contract. For 10 contracts, round-trip = $13. This can be a material cost for frequent options traders.

Example 3 — Buy-and-hold investor in managed account:

• Managed advisory AUM fee of 0.75% annually on a $100,000 portfolio = $750/year. For long-term investors, AUM fees compound and can outweigh per-trade commissions.

These scenarios show why you should match broker choice to trading frequency and account type.

Frequently asked questions (FAQ)

Q: Do all brokers charge commissions? A: No. Many retail brokers offer $0 commissions for U.S. stock and ETF trades, but fees may apply for options, managed accounts, or special services.

Q: Are commissions tax-deductible? A: Commissions are not directly tax-deductible for individual investors. Commissions and fees adjust the cost basis of securities for capital gains calculations. Consult a tax professional for personalized guidance.

Q: How can I find hidden fees? A: Read the fee schedule, customer agreement, Form CRS, and order routing/execution quality reports. Look for sweep account practices, margin rates, securities lending disclosures, and mutual fund expense ratios.

Q: Should I choose the broker with the lowest headline commission? A: Not necessarily. Consider execution quality, available services, product access (including crypto if you use it), margin costs, and the broker’s regulatory standing. Low headline fees can be offset by poor execution or high hidden costs.

Q: Where can I trade crypto if I use a broker offering equities? A: Crypto trading often uses different fee models. If you prefer an integrated exchange and wallet, Bitget and Bitget Wallet provide crypto trading, custody, and Web3 functions alongside educational resources.

See also

• Brokerage fee
• Payment for order flow
• FINRA
• SEC investor.gov
• Commission-free trading
• Robo-advisors
• Securities lending

References and further reading

The guidance in this article is based on industry sources and regulator publications. For precise, up-to-date information, review broker fee schedules and official regulator sites.

As of June 30, 2024, according to public SEC and FINRA disclosures, many retail brokers were reporting $0 commissions for standard U.S. stock and ETF trades while reporting continued reliance on payment for order flow and other revenue sources. Sources include regulator guidance, broker Form CRS and execution quality reports, and investor education materials.

Further authoritative sources to consult: FINRA fee and broker guidance, SEC investor.gov materials on brokers and commissions, broker Form CRS and order routing disclosures, and broker comparison guides from reputable financial education sites.

Further exploration

If you want to compare brokers side-by-side, start by downloading fee schedules, checking Form CRS, and reviewing execution quality reports. If you trade crypto or want integrated wallet support, explore Bitget and Bitget Wallet for trading tools and custody options. Learn more about how fee choices align with your trading style and long-term goals.

Explore more Bitget features and educational resources to compare fee models and trading execution for both equities and crypto.