Fintech firms like SoFi and Robinhood offer “free” stock trading. What’s the catch?

Online lender Social Finance is rolling out a slew of new features, from commission-free brokerage to zero-fee exchange traded funds and crypto trading. But buying and selling securities, of course, is not free. So how does SoFi plan to make money?

One way startups can offer cut-rate prices is by burning through venture capital money, like Uber. For brokerage services, there’s also the Robinhood model, which makes money from interest on customer deposits, charging traders who buy stocks with borrowed money (margin), and selling clients’ stock orders to the market makers who handle the trades (payment for order flow).

San Francisco-based SoFi, which started out in student-loan refinancing, says it will lose money on brokerage in the short term. Its stock-trading business model resembles Robinhood’s: it will make money from interest on customer accounts, securities lending, and a small amount from payment for order flow. The company says it will publish detailed information about this soon. Over time, if all goes well, it may be able to convince customers attracted by its brokerage services to buy other higher-margin products.

Thanks for being a loyal reader. You’ve hit your monthly article limit. Become a member to continue reading and support our journalism.

Get unlimited access to Quartz on all devices. Unlock member-exclusive coverage, CEO interviews, member-only events, conference calls with our editors, and more.

Membership will

About the author

Add a Comment

Your email address will not be published. Required fields are marked *