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Comment by wil421

3 days ago

All the major US brokers started doing free trades for stocks and etfs. For Vanguard, most of the index expense ratios are really low, like %.05 percent, but that’s not a trading fee.

Even for paid transactions that typically give better pricing (IBKR Pro), the prices are extremely cheap.

How do they make money from you as a customer?

  • Quite a lot of customers either have cash sitting in the account which they make interest on, or have margin debt which they charge for.

  • You can Google it, but AUM at scale means .03% is a significant amount of money. There's also uninvested cash that the broker can invest in t-bills and take the spread.

    • Thanks for the lmgtfy :)

      I bet the uninvested cash product drives some weird incentives - kpis around increasing ratio of sells to buys and increasing pain around removing cash.