How do zero-fee share trading apps make money?

In the United States, zero-brokerage share trading platforms are now the norm.

It all started with the wildly popular Robinhood mobile app, and the more traditional online brokers were forced to follow.

So how is it that these platforms let users buy and sell for no fee? How does the software recoup its costs, let alone make a profit?

It’s because of PFOF. Payment for order flow.

All the US exchanges, such as NASDAQ and NYSE, have this mechanism and it works like this:

1. The investor submits an order to sell or buy through the online broking app.
2. The app passes the order to a third party called a ‘market maker’ (also known as a high-frequency trading firm) that will actually perform the transaction.
3. The market maker pays the…