What Zero-Commission Trading Really Costs You in 2025

Zero-commission trading has transformed how millions of people invest. Platforms like Robinhood, Webull, and even traditional brokers now offer commission-free trades, making it easier than ever to buy and sell stocks without paying fees. But here's the reality: trading is never truly free.

While you won't see a commission charge on your account statement, you're still paying for every trade you make. The costs are just hidden in ways most traders don't understand. In this article, we'll break down exactly how zero-commission brokers make money and what it really costs you.

How Zero-Commission Brokers Actually Make Money

When brokers eliminated commissions in 2019, they didn't become charities. They simply changed how they get paid. Instead of charging you directly, they make money through several behind-the-scenes methods.

Payment for Order Flow: The Big One

The primary way zero-commission brokers make money is through something called "payment for order flow" or PFOF. Here's how it works in simple terms:

When you place an order to buy or sell a stock, your broker doesn't send it directly to the stock exchange. Instead, they sell your order to a market maker, a large trading firm like Citadel Securities or Virtu Financial. These market makers pay your broker a small fee for the privilege of executing your trade.

Why would they pay for this? Because they make money on the difference between what buyers pay and what sellers receive. This difference is called the bid-ask spread, and we'll explain it in a moment.

In 2024, major zero-commission brokers received billions in payment for order flow. Robinhood, for example, generated over 70% of its revenue this way. You're not paying a commission, but your broker is getting paid by someone else to handle your trades.

Other Revenue Sources

Beyond payment for order flow, zero-commission brokers make money through:

Interest on your cash: When you leave money sitting in your account, the broker invests it and keeps most of the interest. In a high-rate environment, this can be significant.

Margin interest: If you borrow money to trade, you'll pay interest rates often between 8% to 12% annually.

Premium subscriptions: Many platforms offer premium features, advanced data, or faster execution for monthly fees.

Securities lending: When you hold stocks in a margin account, your broker can lend those shares to short sellers and collect fees, which they rarely share with you.

Understanding the Bid-Ask Spread

The bid-ask spread is the hidden cost you pay on every trade, and it's more important than most people realize.

Every stock has two prices at any moment:

• The bid: The highest price someone is willing to pay to buy

• The ask: The lowest price someone is willing to sell for

The difference between these two prices is the spread. For example, if a stock has a bid of $100.00 and an ask of $100.10, the spread is $0.10.

When you buy a stock with a market order, you typically pay the ask price. When you sell, you receive the bid price. This means you're essentially paying half the spread when you enter a position and half when you exit.

How Spreads Vary

Spreads are much wider on some stocks than others:

Large, popular stocks like Apple or Microsoft might have spreads of just one cent, or 0.01% of the stock price. These are highly liquid—millions of shares trade every day.

Smaller, less-traded stocks can have spreads of 0.20% to 1.00% or even more. On a $10,000 trade, a 0.50% spread costs you $50, much more than the old $7 commission.

Options contracts typically have much wider spreads than stocks, often 5% to 15% of the option's price. This is one of the most expensive areas for retail traders.

Cryptocurrencies on retail platforms can have spreads of 0.50% to 2.00%, especially for less popular tokens.

The Real Cost: What You Actually Pay

Let's make this concrete with some examples.

Example 1: Trading Large-Cap Stocks

You buy $5,000 worth of Apple stock on a zero-commission broker. The spread is 0.02%, which is typical for Apple. Your implicit cost: $1.

Compare this to the old model where you'd pay a $7 commission. Zero-commission saves you $6 on this trade.

Example 2: Trading Small-Cap Stocks

You buy $5,000 worth of a small biotech stock. The spread is 0.40%. Your implicit cost: $20.

Under the old commission model, you'd pay $7. Now you're paying nearly three times more through the spread.

Example 3: Trading Options

You buy 10 options contracts worth $2,000 total. The spread is 8% of the option price. Your implicit cost: $160.

Even with a $0.65 per contract commission (the old standard), you'd only pay $6.50 in fees. The spread cost is 25 times higher.

Why Zero-Commission Can Cost More

Here's the counterintuitive truth: zero-commission trading can actually be more expensive than traditional brokers for certain types of trades.

Traditional brokers that charge commissions often provide better execution quality. They route orders directly to exchanges where you might get better prices. The execution price difference can easily exceed the commission you'd pay.

Research shows that on zero-commission platforms, you often pay slightly higher prices when buying and receive slightly lower prices when selling compared to brokers with direct exchange routing. This difference typically ranges from 0.02% to 0.05% per trade.

For small trades, zero-commission still saves you money. But for larger positions—say $50,000 or more—you might actually pay less in total costs with a broker that charges a $5 commission but gets you better prices.

Who Benefits Most from Zero-Commission?

Zero-commission trading works best for:

Small trades: If you're buying $500 or $1,000 worth of stock, eliminating the $7 commission is a huge saving.

Frequent traders: If you make 50 or 100 trades per year, saving $7 per trade adds up to hundreds or thousands in savings.

Long-term investors in liquid stocks: If you're buying and holding popular stocks with tight spreads, the cost difference is minimal.

Zero-commission may cost you more if you:

Trade large positions: The wider spreads can cost more than a small commission on a $50,000 trade.

Trade illiquid stocks: Small-cap stocks with wide spreads can be expensive on zero-commission platforms.

Trade options frequently: Options spreads are wide enough that execution quality matters significantly.

The 2025 Landscape: What's Changing

The zero-commission model continues to evolve, and several trends are worth watching:

Increased scrutiny of PFOF: Regulators are examining whether payment for order flow truly serves investors' best interests. Some have proposed banning the practice entirely.

Better transparency: New rules require brokers to provide more detailed information about execution quality, making it easier to compare brokers.

Hybrid models emerging: Some brokers now offer tiered pricing where you can choose between zero-commission with PFOF or small commissions with direct exchange routing.

Crypto integration: More traditional brokers are adding cryptocurrency trading, often with visible spread markups of 1-2%.

How to Minimize Your Trading Costs

Even on zero-commission platforms, you can reduce what you pay:

Use limit orders: Instead of market orders, place limit orders at or near the current price. This gives you more control and often results in better execution.

Avoid trading at market open/close: Spreads are widest during the first and last 30 minutes of the trading day. Trading mid-day often gets you better prices.

Check the spread before trading: Look at the bid and ask prices. If the spread is wide, consider whether the trade is worth it.

Stick to liquid stocks: Heavily-traded stocks have much tighter spreads, reducing your costs.

Be patient: Unless you need immediate execution, using limit orders and waiting for better prices can save money.

The Bottom Line

Zero-commission trading has genuinely made investing more accessible. For most small investors making occasional trades in popular stocks, it's a better deal than the old commission model.

But "zero-commission" is marketing, not reality. You're paying through wider spreads and less optimal execution. For some types of trades, particularly large positions, illiquid stocks, or options, you might actually pay more than you would with a traditional broker charging small commissions.

The key is understanding how you're paying and whether it matters for your specific situation. A day trader making 20 small trades daily saves thousands with zero commissions. An investor making quarterly $50,000 trades might actually lose money on the deal.

Know what you're trading, understand the spreads you're paying, and choose the broker that makes sense for your strategy. Trading isn't free. It never has been and never will be. But now you know where the costs are hidden.

Key Takeaways

• Zero-commission brokers make money primarily through payment for order flow, where market makers pay to execute your trades

• You pay through the bid-ask spread—the difference between buying and selling prices

• Spreads vary dramatically: pennies on popular stocks, but potentially 0.5-2% on small caps, options, or crypto

• Zero-commission can actually cost more than traditional brokers for large trades or illiquid securities

• Use limit orders, trade liquid stocks, and avoid peak hours to minimize costs

• The best broker depends on what you trade and how often you trade it

Understanding these hidden costs helps you make smarter decisions about where to trade and how to execute your orders in 2025's evolving market landscape.