How Do Brokerage Houses Make Money?

In Short

There are 2 main ways that a brokerage house makes money. Those ways are through commissions and interest on cash balances.


This type is what most people automatically think of when it comes to this topic. Every time a stock, ETF, mutual fund, or any other security is bought or sold, a commission is paid to the brokerage house. Depending on the particular brokerage house that commission could be a few pennies or hundreds of dollars. The commission costs of the broker you use should be fully disclosed on their website.

Interest on Cash Balances

When you have a brokerage account open, any cash that is within the account doesn’t just sit there. It earns the account owner (you) interest, and it earns the brokerage house a higher rate of interest. Very similarly to a bank, they’ll loan that money out (usually in the form of margin accounts) and the difference between the interest they pay and the interest they receive is their profit. Information on both types of interest can be found on the brokerage house’s website. The interest they earn can be found by looking at how much they charge on margin accounts.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

Learn About My Business


Leave a Reply

Your email address will not be published. Required fields are marked *