As a kid, I always wondered about how banks made money. They help keep my money safe and pay me a small interest on top of that. What a great deal, I thought.

It was only much later that I discovered that banks actually take my money and lend it out to other people at a higher interest rate and pocket the difference.

So for every $10,000 I put in the bank, if they lend it out at an annual rate of 5%, they will earn $500 from interest payment. The bank then pays me $50 for that $10,000 based on an interest rate of 0.50%. Their profit is $450.

Pretty neat right?

When I heard news of brokerages slashing their commission fees to zero in the US, it got me wondering again – how do brokerages make money?

Stock Brokers earn a commission when they execute