Costs, Taxes and Execution

In the first week of October 2019 the price of a US online stock trade went to zero. Charles Schwab cut its online commissions on US stocks, ETFs and the base charge on options to nothing on 7 October 2019, and TD Ameritrade and E*Trade followed within days (reported; the companion's dated line). Robinhood, founded in 2013, had offered commission-free trades on its app from the start. The headline for customers was that trading had become free.

It had not. Schwab kept a charge of $0.65 a contract on options (reported). Every order still crossed a bid–ask spread. Exchange, clearing and regulatory fees still applied to each contract, and the SEC's Section 31 fee on sales, which had been set to $0.00, rose to $20.60 per million dollars of sales from 4 April 2026 (SEC fee rate advisory). Margin loans still carried interest and short sales still paid borrow. And the brokers still earned on each trade, only from someone else: wholesale market makers paid them to execute their customers' orders. Schwab's 2025 annual report put its order flow revenue at $1,930 million, up from $1,404 million in 2023, within trading revenue of $3,921 million, on 7.7 million client trades a day (10-K, audited). Divided crudely, that is about a dollar of order flow revenue per trade (the companion's stylized ratio; the filing does not split it by stock and option orders).

Whether that dollar costs the customer anything is the long argument over payment for order flow. The best-documented answer is a regulator's, about another broker. On 17 December 2020 the SEC fined Robinhood $65 million and found that its customers' orders had received inferior executions that cost them about $34.1 million even after counting the commissions they had saved (SEC release 2020-321). Zero commission had moved part of the cost of a trade from a line on the confirmation into the price of the fill.