To buy and sell stocks, bonds and mutual funds, you need a
broker. A broker can either be an individual licensed agent or a
brokerage. The most basic function of a broker is to execute trades
for the investor, but many brokers offer additional services like
investment advice and portfolio management. Brokers make money by
charging commissions on each trade and collecting fees from
investors.
- Commission and fees - Charging investors a fee
to buy/sell securities. Securities are the financial instruments
that has monetary value and can be traded.Securities are generally
classified as either equity securities such as stock and debt
securities such as bonds and debentures.
- Interest on idle cash - Accruing interest from
investor's money.Accruing interest is the interest on bond that has
accumulated since the principal investment.
- Interest on cash lent in margin account -
Charging interest on the borrowed money in a margin account.
- Fees charged for short selling - Charging the
investor for the securities that have been lent.
- Payment for order flow - Market makers pay the
brokerage firm for the right to transact with the firm's clients.
Assuming the firm itself is not a market maker.
- Exchanges pay firm for liquidity - Exchanges
where the buying/selling of securities are taking place, pay the
firm for providing traffic so to speak.