How Does Webull Make Money With $0 Commissions in 2020?


How does Webull make money with zero commissions and cash balances? Webull charges clients mutual fund investing fees, margin rates, and for managed account.



How Webull Makes Money?


If you’ve heard of Webull, you probably know that this broker-dealer doesn’t charge a dime in commissions. Even option trades have no per-contract charges. So how in the world, you may be wondering, does this brokerage firm survive financially? The short answer is by charging fees for other activities. Here’s the long answer:


Order Flow


Like many other brokerage firms, Webull receives compensation from market makers for sending orders to them. Although Webull doesn’t charge its customers trading fees, it does charge the industry’s market makers. Essentially, Webull sells orders to these market participants, who in turn make money off the bid-ask spread. Typically, Webull’s profit is about 1¢ per share.


Margin


Webull offers margin accounts. Buying securities on margin or taking short positions will entail paying margin interest. Currently, Webull’s margin schedule varies from 3.99% to 6.99%, depending on the amount borrowed. The highest rate applies to balances below $25,000. To reach the lowest rate, you have to borrow over $3 million.


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Deposit and Withdrawal Fees


Most brokerage houses don’t charge anything for incoming wires. But not Webull. Depositing funds into a Webull account via domestic wire costs $8. Sending money the other way is a $25 charge.

International wires are even more expensive. Incoming is $12.50, and withdrawing funds will set your account back a steep $45.

Although ACH transfers are free, if one is reversed, the broker charges $30.


ACAT Fee


Although Webull doesn’t charge anything to transfer an external account to itself, it does charge to go in the opposite direction. The fee is $75.


Interest on Free Cash Balances


Webull earns interest (and doesn’t pay any) on free cash balances in its brokerage accounts. Like banks, brokerage firms are able to use idle cash in its customers’ accounts for various purposes.

One example of an activity that Webull or any other broker could undertake with idle cash is to buy safe U.S. Treasury debt. The yield could be 1.3%, and they’re paying you 0.0% for the cash. This practice is called the net interest margin business, or NIM business.


Passing on Regulatory and Exchange Fees


In the old days, as in 6 months ago, brokers would pay exchange and regulatory fees on behalf of their customers. These sell-side fees would be paid from the commissions traders pay. Now that commissions aren’t being charged, brokers are passing on these fees to the clients who generate them. Webull is no exception. By passing on these fees, Webull keeps its overhead to a minimum.

The fees are as follows:

SEC’s Fee: 22.1¢ for every $10,000 sold. There’s a 1¢ minimum for every sale completed.

FINRA’s Fee: 0.0119¢ per share. There is also a 1¢ minimum—plus a $5.95 maximum.

These are fees assessed against trades of equities, ETFs, and closed-end funds. Options have their own fees, and once again, Webull customers must pay them. They are:

SEC’s Fee: Same as above.

FINRA’s Fee: 0.2¢ per contract with a 1¢ minimum. As usual, it’s sell-side only.

Now we come to fees that are assessed against both sales and purchases. They are:

Options Exchange Fee: 3.88¢ per contract.

Options Clearing Corp (OCC): 5.5¢ per contract. This one is capped at $55 per trade.


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ADR Fees


Webull passes on fees for holding American Depository Receipts.


Comparison


Compared to some other brokers, Webull is competitive. Its margin schedule is cheaper than TD Ameritrade’s but more expensive than M1 Finance’s. Firstrade charges no fees for incoming wires.

Almost all brokerage firms charge per-contract option fees, which as we saw, Webull doesn’t. These brokers include Fidelity, Merrill Edge, and E*Trade.


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