Not what I meant, but capital gains are another issue, but I am not in the US. In the UK we pay a 0.5% tax on ever transaction and often around £10 per transaction, so its quite substantial. I should probably have said costs, not fees.

How much are total costs in the US?

If you trade frequently even low costs add up. If its 0.1% and you trade monthly it ends up being 1.2% over the course of an year.

10+/trade is going back to the early 2000s for the US.

Now it's effectively 0 for most common trades. Here is Schwab for example:

https://www.schwab.com/pricing

If someone is a big options trader they can probably find a better per contract price out there.

How do they profit? There must be a cost somewhere? Another reply mentioned spreads - still a cost (you lose money when you trade).

AUM, managing high wealth clients, running their own funds with expense ratios (also some of the lowest in the industry), uninvested cash, etc... Retail trading is commoditized now.

Anyone who really cares about spreads will be using limit orders. Otherwise you're talking about pennies on highly liquid shares.

The fact that we're even discussing the possible spread differences between market makers shows just how commoditized retail trading has become.

the sell order flow to market makers who gobble up the other side of bad retail trades

I highly doubt market makers are in the business of betting against retail traders.

I suspect they're in the business of collecting the spread on lots of small trades that they can assume are largely random.

What you described is how you bet against retail traders. The bet is that they have no edge so it’s safe to run tight spreads and nice pure market making algos that assume random behavior at volume.

Feels weird to call it a 'bet against' when the other side can (potentially) benefit from the tighter spread you offer.

But yes, the market maker doesn't run the risk of trading with someone with knowledge and a lot of capital to apply it.

Yeah, I don’t like the phrase either, but market making in these pools is quite literally taking the other side of their trades.

Which means that your cost is market maker's spreads instead of fees. Still a cost to you.

Nope, this is one of the counterintuitive things about people paying RH for order flow. Market makers can offer tighter spreads when they know it’s a pool of dumb money.

tighter spreads are not zero spreads

What’s your point? The spreads are tighter than you would get on the open market.

NBBO requires that if there is something better that Robinhood gives it to you.

I think the point is that if you trade, you pay the spreads. Market makers can help you pay narrower spreads, but you still pay them.

If you just hold your index fund, you don't pay these recurring spreads.

Low cost brokerages mostly earn money from the interest rate differential, ie what they pay from your un-invested balances vs what interest they pay you.

They also earn some money from 'payment for order flow'.

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.

Interesting, thanks. For a minute I was expecting someone to say "ads"

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.

Front-running your trade.

This is illegal and is absolutely the dumbest way to make money.

nice try buddy, that’s ILLEGAL

You also pay a spread every time you trade, especially if you're using a retail brokerage like robin hood that sells order flow to market makers.

It doesn't show up anywhere in your statement, but it's a real trading fee nonetheless, so it's still better not to trade too much

Retail is offered tighter spreads because it’s safe to assume they have no edge at scale.

The explicit fees are near zero, but if you watch your trade you always get an adverse price.

what are you talking about. you're not going to fill worse than nbbo

You pay the spread and you also have impact in the market.

If you’re trading US large-cap stocks at low frequency these are not really material costs for even a wealthy retail investor. Certainly not next to taxes.

The spread is a material cost, but the market impact is negligible for retail investors, yes.