How do brokerage firms make money?

Brokerage firms primarily generate revenue through commissions on successful transactions. This means that whenever clients buy or sell securities like stocks and bonds, the firm earns a fee based on the volume or value of the trade. This commission structure is a key component of their business model, as it directly ties the firm's earnings to the activity of its customers in the market.

Brokers may charge a percentage of the transaction amount or a flat fee per trade, which empowers them to scale their profits with increased trading activity. As markets become more active, and as investors engage in more transactions, the potential for earning commissions rises proportionally for the firm.

Other methods of earning, such as charging annual fees or maintenance costs, while also practiced, are typically secondary sources of income for brokerage firms compared to the commissions earned on transactions. Government grants do not apply here since brokerage firms operate in a competitive market and generate their income primarily from client transactions rather than public funding.