How Do No Fee Brokers Make Money? PFOF, Spreads, Cash Interest, and Real Estate Models (2025 Guide)

You see “no fee” and think you’ve beaten the system. The truth: the system just moved the price tag. Brokers and agents still get paid-just not where you expect. If you know where the money flows, you can keep more of yours.

This piece breaks down the playbook across trading apps, forex/CFDs, crypto, and real estate (rentals and sales). You’ll learn the business models, the hidden costs, how to spot them in the fine print, and when “free” is actually good value.

• TL;DR: Key ways "free" platforms make money

• Spreads and markups: You pay inside the price via a wider buy/sell gap.
• Payment for order flow (PFOF): Market makers pay for your orders-common in the US, restricted or banned in many regions.
• Cash interest, margin loans, and securities lending: Your idle dollars and shares earn them income.
• FX conversion, subscriptions, data, ads, and withdrawal/inactivity fees: small bites that add up.
• Real estate “no-fee” = the other side pays: landlords or developers cover commissions; you might see add-ons and referral kickbacks.

How “no fee” brokers actually make money

When you see no fee brokers, read it as “no explicit commission on that specific action.” The broker still runs a business. Here’s where the revenue usually comes from-and what it costs you in practice.

1) Spreads and markups

• What it is: Instead of charging a ticket fee, the platform widens the buy/sell price. You pay the difference going in and out.
• Where you’ll see it: Forex, CFDs, some crypto apps, and even equity trades routed to internalizers/market makers.
• Why it matters: A 0.15% wider spread on $10,000 costs $15 each way. Trade often and the “free” platform can cost more than a $9.95 direct-venue broker.
• Tell-tale sign: “Commission-free” front page, but the execution disclosures mention “price improvement,” “spread,” or “principal trading.”

2) Payment for Order Flow (PFOF)

• What it is: Market makers pay brokers for your orders. They earn from the spread and their hedging. You get fast fills and sometimes “price improvement.”
• Regulatory context: Allowed in the US under disclosure rules; banned in the UK and EU under conduct rules; rare and constrained in Australia due to market integrity rules and best execution expectations from ASIC.
• Why it matters: It can create a conflict-brokers may route based on payments, not pure price quality. The US SEC staff has flagged mixed outcomes in past analyses; European regulators (ESMA) point to conflicts strong enough to justify bans.
• Reality check: Many retail traders still get decent fills, but sophisticated traders often prefer direct, transparent routing and pay a small commission.

3) Net interest on idle cash

• What it is: Your uninvested cash sits in a sweep account. The broker earns a higher rate and passes you a lower one, pocketing the spread.
• Why it matters in 2025: Rates remain elevated. If the platform captures a 1-3% net interest margin on thousands of client balances, that’s meaningful revenue.
• Your move: Use a cash sweep with competitive APY, or keep idle cash minimal if your platform pays low interest.

4) Margin lending

• What it is: Borrow against your portfolio to trade more. The broker charges interest.
• Typical cost: Think mid-to-high single-digit or low double-digit annual rates, varying by region and size of the loan. It’s a major revenue line for many platforms.
• Risk: Amplifies both gains and losses; forced liquidations during volatility hurt.

5) Securities lending (stock lending)

• What it is: The broker lends your shares to short sellers and earns a borrow fee. You might get a cut-or nothing-depending on your agreement.
• Why it matters: Hard-to-borrow names can generate double-digit annualized fees. The broker can keep most of it unless you’re in a program that shares revenue.
• Trade-offs: You could temporarily lose voting rights on lent shares. Some investors opt out for that reason.

6) FX conversion and currency spread

• What it is: Buying US stocks from Australia? Many “free” apps charge 0.3-1.0% per conversion, plus a spread to the wholesale rate.
• Cost math: Invest AUD 10,000 into USD with a 0.7% FX fee-$70 out the door, again on the way back when you sell.

7) Subscriptions, premium data, and add-ons

• What it is: Pro tiers for live data, advanced charts, or reduced margin rates. $5-$30 a month is common.
• Good or bad? If the tools save you more than they cost, it’s fine. Just don’t pay for features you won’t use.

8) Data and ads

• What it is: Aggregated flow data, referral ads, or partner offers. Legit if anonymized and disclosed.
• Your call: Toggle privacy settings. Decline partner offers you don’t want.

9) Ancillary and “nuisance” fees

• What it is: Withdrawal fees, instant-transfer fees, crypto network pass-throughs, account reissue, or inactivity fees.
• Tip: Scan the fee schedule line by line. The nickel-and-dime stuff bites frequent movers.

10) Real estate “no-fee” models (rentals and sales)

• Rentals: “No-fee to tenant” means the landlord pays the letting fee (often equivalent to one week’s rent in Australia) and a management fee on ongoing rent (commonly 6-10% here). Tenants typically can’t be charged a letting fee under Australian tenancy laws.
• Sales: “Zero commission” agents may charge a flat upfront fee plus vendor-paid advertising (photography, listings, staging). Some get paid by developers for steering buyers to new projects.
• Referrals: Agents can receive referral fees from mortgage brokers, conveyancers, insurers, and utilities. Disclosure quality varies.

Bottom line: “Free” shifts the cost from the ticket price to the plumbing. Sometimes that’s fine-if the hidden cost is lower than the old commission. Your job is to measure it.

How to spot the real cost and choose the right model

Here’s a straightforward way to figure out what you’ll actually pay-and which setup fits your style.

Step-by-step: Audit a “no fee” broker in 15 minutes

1. Pull the disclosures: Fee schedule, order routing/execution policy, margin rate card, cash sweep APY, securities lending terms, and any FX schedule.
2. Estimate your pattern: Trade size, frequency, markets (US, AU, crypto), and whether you’ll hold cash.
3. Price your flow:
   • Spread: Assume 0.05-0.30% on liquid US equities, higher for illiquid names/crypto. Multiply by trade size and frequency.
   • FX: If you cross currencies, apply the platform’s posted percentage each way.
   • Cash: Compare cash sweep APY vs. benchmark rates. The gap is the opportunity cost.
   • Margin: Apply your expected loan balance to the posted APR.
   • Lending: If the broker keeps all lending revenue, assume $0 benefit to you; if a share program exists, ask for historic ranges.
4. Compare with a low-cost “paid” broker: Take the commission (say $9.95) plus any exchange fees, and compare to your spread+FX+interest costs under “free.”
5. Decide on safety needs: In Australia, CHESS sponsorship means shares sit on the ASX register in your name. Some low-cost brokers use custodians. Decide what you’re comfortable with.

Rules of thumb that actually help

• If you trade infrequently and buy large, transparent spreads matter more than the ticket. A $9.95 commission can be cheaper than a 0.20% spread on $10,000 ($20).
• If you DCA weekly in blue chips, friction is mostly FX and spread. Aim for platforms with tight spreads and fair FX.
• If you hold big idle cash balances, pick a broker with a top-tier cash sweep. Net interest is where many brokers make their money now.
• Borrowing on margin? The APR can dwarf everything else. Negotiate a rate or find a platform with a published tiered discount.
• Care about voting and proxy? Either opt out of securities lending or use a program that protects your preferences.

Worked examples

• Active trader, US equities from Australia: 10 trades/month at AUD 5,000 each. “Free” app has 0.15% spread and 0.7% FX each way.
  • Spread cost: 0.15% × $5,000 × 10 = $75/month.
  • FX cost: 0.7% × $5,000 × 2 sides × 10 = $700/month.
  • Total implicit = $775/month. A $9.95 commission broker with tight FX (0.2%) could be cheaper, depending on your fill quality.
• Long-term investor, AU blue chips, 1 buy/month at $3,000, holds cash.
  • Commission-free, spread ~0.05%: $1.50/month in spread.
  • But if cash APY paid is 1% while market cash earns ~4%+, you’re losing 3% on idle cash. On $10,000 that’s $300/year. A broker paying 4%+ could save more than any commission fee.
• Tenant in a “no-fee” rental: No tenant fee, but landlord pays one week’s rent to the agent plus 7% management. You might see optional “utility connection” offers or insurance referrals. Just decline or shop around.

Quick checklist: before you click “Open Account”

• Fees: Is there an FX line item? What’s the instant-deposit or withdrawal fee?
• Execution: Do they disclose routing and price improvement stats?
• Cash: What APY do you get on idle balances?
• Margin: What’s the real APR at your expected loan size?
• Lending: Are your shares lent by default? Do you get a cut? Can you opt out?
• Custody: CHESS-sponsored (AU) vs custody model. Who actually holds title?
• Real estate: Who pays the agent? Any non-optional “admin” or “marketing” fees?

What the regulators say (plain English)

• US: The SEC requires brokers to disclose routing and conflicts. Staff reports have analyzed PFOF and price improvement outcomes in equity markets.
• UK/EU: The FCA and ESMA have prohibited PFOF due to conflicts. Best execution has to be demonstrable and conflict-free.
• Australia: ASIC’s market integrity rules and guidance expect best execution and robust conflict management. PFOF-style arrangements for equities are rare here; most mainstream brokers charge a stated fee or earn via FX/interest.
• Tenancies (AU): State tenancy laws generally prohibit agents from charging tenants a letting fee; the landlord pays the agent. Always check your state’s legislation.

Special cases, FAQs, and your next moves

Zero-fee isn’t automatically bad. The trick is matching the model to your needs and avoiding gotchas. Here are straight answers to the questions people ask after the first coffee.

Mini‑FAQ

• Are commission‑free brokers safe? Safety isn’t about the commission. It’s about custody, regulation, and risk controls. In Australia, CHESS sponsorship means your shares are registered in your name on the ASX subregister. Custody models can still be fine-just know who holds the assets and under what trust structure.
• Is PFOF allowed in Australia? Not in the US sense. It’s constrained by market rules and best execution expectations, and it’s been effectively squeezed out for equities. If you see “internalization,” read the disclosure carefully.
• Do brokers sell my data? Many monetize aggregated or anonymized data; some run partner offers. They should disclose it. You can usually limit sharing in privacy settings.
• Which is cheaper: $0 commission with spreads or $9.95 direct routing? Run the math. If your spread and FX cost exceed the commission, pay the commission. If you trade tiny amounts often, zero‑commission might win.
• Can I stop my broker lending my shares? Often yes-toggle out in settings or choose an account type that prohibits lending. If you join a lending program, ask what percentage of revenue you receive and how voting rights are handled.
• Why do crypto apps say “no fees” but my fill looks off? Many charge via spread rather than an explicit fee. Compare the executed price to a reliable mid‑market reference at the same second.
• In rentals, what does “no‑fee” mean for tenants in Australia? Usually the landlord covers the letting and management fees. Tenancy laws in states like SA, NSW, QLD and others restrict agents from charging tenants a letting fee. You still pay bond and rent, and optional services are exactly that-optional.
• Are “no‑commission” property sale agents legit? Some are. They often charge a flat listing/staging/marketing bundle or get paid by developers in project sales. Ask who pays them, how much, and what happens if the property doesn’t sell.

Red flags and how to handle them

• “Free” but vague execution disclosures: Ask for routing reports or price improvement stats. If they can’t explain, move on.
• Below‑market cash APY with big balances: Sweep funds to a better‑yielding account or pick a broker that shares interest fairly.
• Default securities lending with zero revenue share: Opt out or move to a platform that shares.
• FX surprises: Lock in the posted FX percentage. If they can’t quote it, consider that a hard no.
• Real estate “admin fees” that aren’t optional: Push back. In many Australian states, charging tenants extra for basic tenancy administration isn’t allowed.

Next steps (pick your path)

• Stock/ETF investors (AU): If direct ownership matters, shortlist CHESS‑sponsored brokers. Compare: commission, FX, cash APY, and margin rates. If you mostly buy and hold, the cash APY and FX matter more than the ticket.
• Cross‑border traders: Model the FX round‑trip cost and spreads. If you’re buying US stocks weekly, a platform with low FX and tight execution often beats one with “free” trades but chunky FX.
• Crypto users: Compare execution price to a public index at execution time. Spread is your real fee. Also check network withdrawal fees and any “instant buy” markups.
• Renters (AU): When you see “no‑fee,” confirm in writing that the landlord covers agent fees. Decline any paid add‑ons you don’t need (utilities, insurance).
• Sellers/landlords: If a listing agent pushes a large “marketing package,” ask which items are optional, who owns the assets (photos, floorplans), and whether there’s any developer or referral commission.

Troubleshooting common scenarios

• My fills look worse than expected: Screenshot time and price, compare to a quality mid‑price source, and raise a ticket. If patterns persist, escalate to the broker’s compliance team. In Australia, unresolved disputes can go to AFCA.
• I discovered hidden FX fees: Ask the broker to point to the disclosed schedule. If it’s buried or misleading, consider lodging a complaint and switching platforms.
• I didn’t know my shares were lent: Review your agreement. If lending was opt‑out but made obscure, opt out and request any available revenue share on past periods (no guarantee). Consider voting implications around AGM season.
• Real estate add‑ons were presented as mandatory: Ask for the legal basis. In many cases, they’re optional. If you already paid, request a refund; contact your state consumer protection agency if needed.

Why this matters now

• Rates are still relatively high, so cash and margin are big revenue lines for brokers.
• Regulators globally are pushing on conflicts and transparency-PFOF bans in the UK/EU, scrutiny in North America, best‑execution pressure here in Australia.
• In property, tight rental markets make “no‑fee” headlines tempting; understanding who actually pays prevents nasty surprises.

If “free” helps you invest more without leaking money through spreads, FX, or poor cash rates, use it. If not, pay a small, honest fee to get better execution or custody. That’s the trade that really counts.