This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
Commission-free trading — no charge to place a stock or ETF trade — is now standard at every major US broker. The shift to $0 commissions, which began when Robinhood launched in 2013 and became industry-wide in late 2019, has eliminated the most visible trading cost. But commission-free does not mean cost-free — brokers earn revenue through other channels.
Which Brokers Offer Commission-Free Trading?
Every major US broker now offers $0 stock and ETF trades:
| Broker | Stock/ETF | Options | Mutual Funds (NTF) | Fractional Shares |
|---|---|---|---|---|
| Fidelity | $0 | $0.65/contract | 3,400+ no-transaction-fee | Yes ($1 minimum) |
| Charles Schwab | $0 | $0.65/contract | 4,000+ OneSource | Yes ($5 minimum) |
| Interactive Brokers | $0 (Lite) | $0.65/contract | 19,000+ (some fees) | Yes |
| Vanguard | $0 | $0.65/contract | Vanguard funds only | Yes |
| Robinhood | $0 | $0/contract | Not offered | Yes ($1 minimum) |
| Webull | $0 | $0/contract | Not offered | Yes ($5 minimum) |
| E*TRADE | $0 | $0.65/contract | 4,400+ no-load, no-fee | Yes |
| Merrill Edge | $0 | $0.65/contract | 3,800+ NTF | Yes |
How "Free" Trading Works: Revenue Sources
If you are not paying a commission, how does the broker make money? Four primary channels:
Payment for Order Flow (PFOF)
When you place a trade, your broker routes the order to a market maker — a firm like Citadel Securities or Virtu Financial — rather than sending it directly to an exchange. The market maker pays the broker for this order flow. The market maker then executes your trade at a price that includes a small spread — the difference between buy and sell prices.
The broker receives the PFOF payment. You, the trader, receive an execution price that may be slightly different from the best available exchange price. The difference is typically fractions of a cent per share. For a 100-share trade, this might amount to a few cents. The total PFOF revenue for major brokers reaches hundreds of millions of dollars annually.
PFOF is legal and regulated. The SEC requires brokers to disclose PFOF practices and to seek "best execution" for customer orders. Critics argue that PFOF creates a conflict of interest — the broker's incentive to maximize PFOF revenue may not align with getting the customer the best possible execution price. Regulators, including the SEC, have examined these practices and in some cases (notably Robinhood's $65 million SEC fine in 2020) found that disclosure was inadequate.
Margin Lending
Brokers earn interest on money they lend to customers through margin accounts. The difference between the rate the broker charges you and the rate at which the broker itself borrows is profit. Margin interest revenue is substantial — for some brokers, it exceeds commission revenue.
Interest on Idle Cash
When you hold uninvested cash in your brokerage account, the broker sweeps it into a bank or money market fund. The broker earns interest on that cash and typically pays you a lower rate than it earns — the difference is the broker's profit. This is called the cash sweep yield spread.
The spread varies widely. A broker paying 0.01% on idle cash while earning 4% on the same funds keeps the difference — $399 per year on $10,000 in idle cash, while you receive $1. Some brokers, notably Fidelity and Schwab, pay more competitive rates on idle cash.
Securities Lending
Brokers lend shares held in customer accounts to other traders — typically short sellers who need to borrow shares. The broker earns a lending fee and may share a portion with customers who opt into a lending program. Even without explicit customer opt-in, brokers may lend shares held in margin accounts up to the amount of the margin loan.
Is Commission-Free Trading Good for Investors?
The evidence is mixed.
What is clearly positive: The elimination of $5-$10 per-trade commissions has made investing accessible to people who could not justify those costs on small trades. Fractional shares combined with $0 commissions mean you can invest $10 without losing any of it to fees.
What is less clear: The PFOF model means you pay for your trades through slightly different execution prices rather than explicit commissions. For most retail investors trading infrequently, the total cost is almost certainly lower than it was under the commission model — paying fractions of a cent per share through PFOF is cheaper than paying $5-$10 per trade.
What warrants attention: The cash sweep yield. A broker may offer $0 commissions but pay 0.01% on your idle cash while earning substantially more. Over time, the opportunity cost of low cash yields can exceed what you save on commissions.
Frequently Asked Questions
Is a commission-free broker actually free? No. The broker earns revenue through PFOF, margin lending, cash sweep spreads, and securities lending. You pay indirectly through execution prices, margin rates, and the yield on your idle cash. The question is whether the total indirect cost is lower than explicit commissions would be — for most investors, the answer is yes.
Does PFOF mean I get worse execution prices? The difference between a PFOF execution and the best available exchange price is typically very small — fractions of a cent per share. For most retail trades of a few hundred shares, the cost difference is measured in cents. For very large trades, the difference can be more meaningful.
Which broker has the best execution quality? Interactive Brokers' smart routing technology is generally considered to produce among the best execution quality. IBKR's IBKR Pro account does not use PFOF — instead, it charges small explicit commissions and routes orders to the best available price. IBKR Lite uses PFOF, like most other brokers.
Should I avoid brokers that use PFOF? For most investors, PFOF-based execution is acceptable. The cost difference is small, and the alternative — paying explicit commissions — typically costs more. If execution quality at the sub-cent level matters to your strategy, consider IBKR Pro or a broker with a transparent execution policy.
Do all $0-commission brokers have the same costs? No. While stock/ETF commissions are $0 everywhere, margin rates, options fees, cash sweep yields, and mutual fund transaction fees differ significantly. The total cost of using a broker depends on these other fees, not just the $0 commission.
Where to Start
Compare brokers on the costs that apply to your trading: margin rates if you use margin, options fees if you trade options, and fund expense ratios if you hold funds. Our hidden fees guide explains what to look for. Our broker reviews include fee analysis for each broker.
Investing involves risk. The value of investments can go up as well as down and you may receive back less than your original investment. This page contains affiliate links.