Commission-Free Brokers: The Complete Guide
"Free" trading isn't really free—someone always pays. We'll show you exactly how commission-free brokers make money, and which ones actually give you the best deal.
The Truth About "Free" Trading
In 2024, Schwab made $10.4 billion in net interest revenue. Robinhood made ~$974 million from payment for order flow. Your "free" trades are funding massive businesses.
This isn't necessarily bad—but you should understand what you're trading for "free" commissions.
How "Free" Trading Actually Works
When Robinhood pioneered commission-free trading in 2013, the industry laughed. Now everyone offers it. Here's how they make money instead:
1. Payment for Order Flow (PFOF)
When you place a trade, your broker can sell that order to a market maker like Citadel or Virtu. The market maker pays for the privilege of executing your trade because they profit from the spread.
In 2024, the industry generated approximately $3.8 billion in PFOF revenue. Citadel alone handled 41% of all retail order flow.
Who uses PFOF: Robinhood (heavily), Webull, E*TRADE, Schwab, most retail brokers
Who doesn't: Fidelity, Interactive Brokers Pro, Public.com, Vanguard
2. Net Interest Revenue
Your uninvested cash sitting in a brokerage account earns interest—but brokers pay you 0-4% while investing it at higher rates. Schwab made $10.4 billion from this in 2024.
3. Margin Interest
If you borrow money to trade (margin), you pay interest. Rates range from 4.9% to 12%+. On $97 billion in margin balances (Schwab alone), this generates massive revenue.
4. Securities Lending
Your shares can be loaned to short sellers. The broker collects the lending fee and may or may not share it with you.
5. Premium Subscriptions
Robinhood Gold ($5/mo), Webull Premium ($40/yr), Moomoo subscriptions—these add up across millions of users.
Every Commission-Free Broker Compared
| Broker | Stocks | Options | PFOF? | Cash APY | Notable |
|---|---|---|---|---|---|
| Fidelity | $0 | $0.65/contract | No | ~2.7% | Best execution quality |
| Schwab | $0 | $0.65/contract | Yes | ~0.5% | Low cash yield |
| Robinhood | $0 | $0 | Heavy | 3.25% (Gold) | Free options |
| Webull | $0 | $0 | Yes | 3.85% (Prem) | Free options |
| Public.com | $0 | $0 + rebates | No | 3.3% | Options rebates |
| E*TRADE | $0 | $0.50-$0.65 | Yes | ~0.5% | Volume discounts |
| IBKR Lite | $0 | $0.65/contract | Yes | Varies | Lite uses PFOF |
| Moomoo | $0 | $0 | Yes | 8.1% promo | High promo APY |
| Firstrade | $0 | $0 | Yes | Low | Free options |
| SoFi | $0 | N/A | Yes | ~3% | No options trading |
The Hidden Costs of "Free"
Commission-free doesn't mean cost-free. Watch out for these:
Worse Execution (PFOF Brokers)
When your order goes to a market maker instead of an exchange, you might get slightly worse prices. Interactive Brokers claims their non-PFOF execution saves customers ~$10 per 1,000 shares traded. For casual investors, this is negligible. For active traders, it adds up.
Low Cash Yields
Schwab pays ~0.5% on uninvested cash while earning 4%+. That's hidden revenue extracted from you. If you keep $50,000 in cash, you're losing ~$1,750/year versus a high-yield savings account.
Solution: Use a broker with competitive cash rates (Robinhood Gold 3.25%, Webull Premium 3.85%) or move cash to a high-yield savings account.
High Margin Rates
"Free" brokers often charge 10-12% margin interest. If you use $50,000 in margin, that's $5,000-$6,000/year at traditional brokers versus $2,450 at Public (4.9%).
Options Contract Fees
Most "commission-free" brokers still charge $0.50-$0.65 per options contract. Only Robinhood, Webull, Firstrade, and Moomoo offer truly free options trading.
Transfer Fees
Want to leave? That'll cost you $50-$100 at most brokers (called an ACAT fee). Only Fidelity and IBKR charge $0 for outgoing transfers.
Which Commission-Free Broker Is Actually Best?
- ✓ No PFOF = better execution
- ✓ No transfer fees
- ✓ Excellent research & service
- ✗ Options still $0.65/contract
- ✓ Free stocks, options, crypto
- ✓ 3.25% APY (Gold)
- ✓ 3% IRA match (Gold)
- ✗ Heavy PFOF reliance
- ✓ No PFOF
- ✓ Free options + rebates
- ✓ Lowest margin (4.9%)
- ✗ Less research tools
- ✓ Free options
- ✓ Advanced mobile charting
- ✓ 3.85% APY (Premium)
- ✗ Chinese ownership concerns
Should You Care About PFOF?
This is genuinely debatable. Here's the honest assessment:
PFOF probably doesn't matter if:
- You're a buy-and-hold investor making occasional trades
- You trade small positions (under $10,000 per trade)
- You value simplicity and free options over execution quality
PFOF matters if:
- You're an active trader executing many trades
- You trade large positions where pennies per share add up
- You care about the principle of best execution
The EU banned PFOF effective 2026. The UK banned it in 2012. The SEC proposed restrictions but withdrew them in 2025. The practice remains legal and common in the US.
The "Truly Free" Tier List
Here's how we'd rank brokers by actual total cost to typical investors:
Bottom Line
Commission-free trading is genuinely revolutionary—it democratized investing for millions. But "free" is a marketing term, not reality. Every broker makes money somewhere.
The smartest approach: understand the trade-offs, choose a broker that aligns with your priorities, and don't assume "free" means "best deal."
For most people, Fidelity offers the best balance of truly low costs (no PFOF, no transfer fees, competitive cash rates) with excellent service and tools. If you want completely free options trading and don't mind PFOF, Robinhood or Webull deliver real value through their premium tiers.
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