Webull is a popular zero-commission brokerage. Users rave about the user-friendly mobile app and the market information it provides. Millions of investors are using the app. But how does WeBull make money? For that matter, how does any zero-commission broker make money?

Let’s take a closer look.

What Is Webull?

Webull is a relatively new entry in the zero-commission brokerage business. The Company launched its mobile app in 2018 and had 11 million registered users by 2020.

Webull logo

Webull offers many of the same features that characterize most no-fee brokers. There are no trading commissions. There are no per-contract, exercise, or assignment fees on options trades. Webull does not have a minimum balance for accounts. They introduced fractional shares in June 2021.

The Webull app gets very positive reviews for its well-planned interface and ease of use. The app offers large amounts of market data for free, and it’s easy to find what you want. A more advanced data package is available for an additional fee.

Webull offers a social media feature that allows investors to discuss investments and trade information.

As with many zero-fee brokers, many consumers wonder how WeBull makes money. The question matters. If you know how a company makes money you can detect potential conflicts of interest. Not knowing how a company makes money leaves users wondering whose interests the company really serves.

What Do Brokers Do?

A stock market is, of course, a market. Some people want to sell, and some want to buy. Each stock, ETF, or other security is a product.

What makes stock markets uniquely complex is that the price of each product fluctuates constantly. Each product has three key figures:

  • The “Bid” or “Offer” is the amount that a buyer is willing to pay.
  • The “Ask” is the amount that a seller is willing to accept.
  • The “Spread” is the difference between the bid and the ask.

A heavily traded security may have thousands of bids and thousands of asks in play at any given moment, with a constantly shifting spread between the two.

It’s impossible for a stock buyer to dive into the market as an individual, find someone who’s willing to buy or sell a particular security, and negotiate a price. Stockbrokers fill that function. If you want to sell, they find a buyer. If you want to buy, they find a seller.

🧐 Once upon a time, the main source of income for a broker was a per-trade commission. In the late 1980s, the average commission was around $45 but could range into the hundreds for larger trades. Today increasing numbers of brokers charge no commission at all.

So how does WeBull make money? How does any broker make money?

Even in the commission era brokerages had other sources of revenue. Those sources have now taken over completely. Here they are, one by one.

Interest on Cash Balances

Almost everyone who has a brokerage account keeps some cash in their account. Investors hold a cash balance so that they will be able to buy securities they want without having to sell an existing holding first.

The cash you hold in your account earns a small amount of interest. Let’s say that’s 0.25%. The brokerage will then pool your cash with their other cash and place it in short-term investments. Because the broker has a large and continuous sum to invest, they will get a better rate.

Let’s say the broker gets 1.25% on their investment. The 1% difference between what they earn and what they pay you is their profit.

We don’t know how much WeBull earns from interest income. The company is privately held and does not have to report its sources of income. We do know that in 2019 several major brokerages earned more than 50% of their revenue from interest.

We can assume that WeBull earns a significant amount of income from interest.

Payment for Order Flow

Most brokers do not buy and sell stocks themselves. They outsource this function to companies called market makers or internalizers. These companies handle huge volumes of trades and make their money from arbitrage. You’ve heard that word, but what does it mean?

🤔 Arbitrage: the practice of buying and selling in different markets at the same time and taking advantage of price differences.

A picture is worth a thousand words:

The difference between those prices is profit for the market maker. The market maker needs trades to earn that profit, so they pay the broker for a flow of orders. That is payment for order flow.

Every seller gets a little less than they might have and every buyer pays a little more than they might have. That is a hidden “fee” that traders pay for the ability to trade fast and easily.

Payments for order flow have increased dramatically, becoming a major source of income for the brokerage industry.

Chart showing the annual order routing revenue for the selected brokerages in the period of 2011 to 2020.
Source: Yahoo Finance

Payments for order flow have recently come into question, as they operate to the disadvantage of both buyers and sellers. Some brokers have been accused of conflict of interest because their desire to maximize payments for order flow could lead them to compromise the interests of investors.

Essentially you are still paying a commission, it’s just bundled into the process instead of appearing as a separate line item. If you’re wondering how WeBull makes money, that’s part of the picture.

Interest on Margin and Short Trades

Like most brokers, Webull allows qualified investors to trade on margin and to make short trades. In both cases, the broker earns interest income.

Margin Trades

Margin trades are a way for investors to purchase securities with borrowed money. The investor uses a portion of their own cash and the broker lends the rest. Once the securities are in the brokerage account they serve as collateral for the loan.

Brokers charge interest on the money they lend for margin trades. These are Webull’s interest rates on margin loans:

Margin Loan (USD)Annual Margin Rate

These are competitive rates and many brokers charge more. They are still a part of how WeBull makes money.

Short Sales

Investors who believe that a stock will fall in price can short the stock. They borrow shares of a stock from their broker. When the expected decline in value occurs, they purchase the shares at a lower price and use those to bay pay back the borrowed shares.

Webull states thatThe cost associated with a short sale is the fee for borrowing said stock. This fee changes every day for every available stock and is charged on a daily basis.

Premium Information

Webull offers a substantial range of market data for free, and most new or relatively basic investors will be satisfied with the basic package. For day traders and more sophisticated investors, Webull offers the “Level Two Advance” package.

The Level Two Advance package is a partnership with Nasdaq TotalView and gives access to more detailed moment-to-moment trading information.

This package is free to Webull users and costs $1.99 per month after that. Webull does not disclose subscription revenue or the revenue split between Webull and Nasdaq TotalView, but if 10% of Webull’s 11 million users (at the start of 2021) subscribe the total revenue would be over $2 million a year.

That’s how WeBull Makes Money

So there you have it. Interest on cash holdings, payment for order flow, interest and fees on margin trades and short sales, and premium subscriptions. That’s how WeBull – and every other zero-commission broker – makes money.

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