---
id: "prereq-brokerage-models"
type: "prerequisite"
source_timestamps: ["00:16:28"]
tags: ["finance", "business-models"]
related: ["concept-democratization-finance", "entity-robinhood"]
reason: "Understanding how traditional brokerages made money (commissions) is necessary to grasp why Robinhood's zero-commission model was so disruptive."
sources: ["robinhood"]
sourceVaultSlug: "cardone-bhatt-robinhood-aetherflux-2026Jun25"
originDay: 10
---
# Retail Brokerage Business Models

## Why it matters

To fully appreciate the impact of [[entity-robinhood]] and the [[concept-democratization-finance]] thesis, one must understand the **legacy brokerage model**:

- Firms charged a flat fee per trade (commonly **$7–$10**).
- Many imposed account minimums.
- This created meaningful friction for retail investors with small account balances — a $100 trade with a $9 commission is a 9% drag on entry before any market move.

## Post-Robinhood model

- Zero per-trade commission.
- Revenue primarily from **payment for order flow (PFOF)**, margin lending, securities lending, cash sweep, and subscription tiers (Robinhood Gold).
- Industry-wide commission collapse in October 2019 (Schwab, TD Ameritrade, E*Trade).

## Why this matters for understanding critique

The **PFOF** model is central to the critical-literature objection: zero commissions do not mean zero cost — they shift the cost into order-execution quality and market-structure questions. See the *contested framing* section in [[concept-democratization-finance]].