How Does E*Trade Make Money?
You may be asking how E*Trade still makes income even though it provides $0 commissions on stocks and ETFs. Stock commissions are a small portion of what a brokerage earns overall, and E*Trade uses several ways to generate money. Let’s look closer.
$0 Stock Commissions Still Make Money For E*Trade
Even without commissions on ETFs and stocks, E*Trade still makes money from those trades through a process known as payment for order flow.
Payment for order flow works like this: E*Trade directs its customers’ orders to specific market makers who match buyers and sellers. Those market makers pay E*Trade for the opportunity to receive these orders, typically fractions of a penny per share. Although this may seem tiny on a single trade, it quickly adds up because many shares are bought and sold each day.
Market makers also have to turn a profit. They do so by purchasing shares at a lower price from sellers and selling them at a higher price to buyers, creating a bid-ask spread on every stock and ETF. This spread acts as a built-in payment for each involved party.
Even though $0 commissions are advertised, E*Trade still applies stock commissions in certain cases. For example, the $0 rate applies only to online trades. Orders made by phone with a broker cost $25 each.
OTC stocks are not commission-free, costing $6.95. Active traders get a $2 discount. Large block orders might also come with extra charges.
Trades made on E*Trade’s Pro desktop platform and routed directly to an Electronic Communication Network have an added fee of 0.5¢ per share.
E*Trade Makes Money on Mutual Funds
Mutual funds without loads or transaction fees come with a $49.99 short-term redemption fee if you sell within 90 days.
Brokerage firms often get paid by the mutual fund companies on their preferred fund lists. E*Trade shows an All-Star List of funds, suggesting it is compensated by the fund providers it features.
In fact, E*Trade’s parent firm, Morgan Stanley, revealed in 2004 that it got as much as 0.05% of assets and 0.20% of sales annually from various fund families like PIMCO and Franklin Templeton. This detail became public after a $50 million settlement involving claims that Morgan Stanley did not tell clients about giving certain fund families special treatment for cash payments. Morgan Stanley did not admit or deny those accusations.
E*Trade Makes Money on Option Fees
Next, E*Trade collects revenue from option trades. Each contract costs 50¢, plus another 15¢ per contract for accounts placing under 30 trades every quarter.
E*Trade doesn’t charge a base rate on option trades, but the per-contract fee of 65¢ adds up. For instance, an option spread with four parts costs $2.60, and closing that position brings the total to $5.20.
E*Trade Makes Money on Futures
E*Trade also profits from futures trades. Futures contracts are pricier than options. E*Trade charges $1.50 per contract, per side, plus a $1.00 fee for crypto futures.
E*Trade Makes Money on Fixed Income
Fixed-income instruments involve their own commissions. When trading secondary bonds online, E*Trade charges $1 per bond, with a $10 minimum and a $250 maximum. Extra fees apply to certain new issues (not including Treasuries). E*Trade may act as principal or agent on bond trades.
E*Trade Makes Money on Investment Advice
Another revenue stream is from advisory services. Managed accounts likely bring a large chunk of profit to the firm.
For E*Trade’s robo option, an annual 0.30% fee applies to account balances. Accounts start at $500, which equates to $1.50 per account at minimum.
That’s specifically for robo accounts. There are also traditional accounts with various minimums and yearly costs. One is called Blend Portfolios, costing 65 to 90 basis points per year, starting with a $25,000 minimum deposit, generating considerable yearly revenue.
Bond portfolios charge less annually but need a $250,000 deposit to open.
Net Interest Margin (NIM)
Net interest margin is a major source of earnings for banks and brokerage companies. E*Trade has both a bank and a brokerage side, making it likely a big contributor to its profits.
Net interest margin is similar to the bid-ask spread. Financial firms borrow money at low rates and lend it at higher rates. For cash, the “buy” rate is what they pay on deposits, and the “sell” rate is what they collect on loans.
Let’s look at E*Trade’s rates:
E*Trade Bank offers 0.00% on regular checking and 0.05% on its Max-Rate checking (which has a $15 monthly charge). E*Trade uses these deposits to grant loans to clients. Its credit lines have rates up to 4.9%. On the brokerage side, margin interest ranges from 11.95% to 13.95%. This means the interest spread is quite large.
Miscellaneous Account Fees
E*Trade has numerous account-related fees. Paper statements cost $2 each (though larger accounts may avoid this charge). Full account transfers cost $75. Early IRA withdrawals cost $25, and recharacterizations are another $25. Outgoing wires are $25. A paper stock certificate request is $500.
E*Trade surely earns a fair amount of money from these extra charges.
See all E*Trade fees.
E*Trade Review
Read detailed E*Trade review.
Updated on 3/23/2025.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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