Online Investors’ Ten Most Common Questions
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How can deep-discount online brokers make money charging $5 or less for trades?
Don’t feel too bad for the online brokers. Although commissions have fallen through the floor and are free in some cases, brokers are doing fine.
Keep in mind that the costs to execute trades have also fallen. It generally costs online brokers between $2 and $6.50 to execute a trade. Larger brokers usually pay closer to $2, meaning that a vast majority of online brokers are able to make money from the commissions they charge.