How Does TD Ameritrade Make Money?

TD Ameritrade is a broker and online trading platform for common and preferred stocks, forex, options, cryptocurrency, mutual funds, and futures contracts. It also offers a range of cash management services. The investing platform gains commissions by selling various type of assets. With over $1 trillion in assets, TD Ameritrade also makes a significant amount of money from funds sitting idle in customer accounts. Payment for order flow (PFOF) is compensation TD Ameritrade earns for facilitating the execution of trades.

Commission FeesTD Ameritrade earns a significant portion of its revenue through commission fees charged to clients for executing trades. Clients pay fees for buying and selling stocks, options, exchange-traded funds (ETFs), mutual funds, and other financial instruments. These fees can vary depending on the type of trade, the asset class, and the volume of trading activity. While the industry has seen a trend toward commission-free trading, TD Ameritrade may still charge commissions for certain trades.
Spread and Margin InterestTD Ameritrade earns revenue through spread and margin interest. When clients trade on margin (borrowing funds to leverage their investments) or hold cash balances in their accounts, TD Ameritrade can earn interest income by investing those funds in short-term securities or lending them to other financial institutions. The difference between the interest earned and the interest paid to clients represents a source of income for the company.
Asset Management FeesTD Ameritrade offers a range of asset management services, including robo-advisory platforms and professionally managed portfolios. Clients who opt for these services pay asset management fees based on a percentage of their assets under management (AUM). These fees can vary depending on the level of service and the AUM. TD Ameritrade may also offer commission-free ETFs through its platforms, earning fees from ETF providers.
Subscription ServicesTD Ameritrade provides clients with access to various subscription services that offer enhanced tools, research, and educational content. These services often come with a monthly or annual fee. Examples include premium trading platforms, advanced market data, and proprietary research reports. Revenue is generated from subscription fees paid by clients who opt for these premium services.
Corporate ServicesTD Ameritrade offers corporate services to businesses and institutions, including retirement plans, stock plan administration, and cash management solutions. Revenue is generated by providing these services, often through service fees and asset-based fees. These services cater to the needs of corporate clients and organizations.
Interest Rate SpreadTD Ameritrade may earn revenue through the interest rate spread. By maintaining deposits and cash balances in client accounts, TD Ameritrade can invest these funds in interest-bearing assets such as government bonds or other financial instruments. The interest income generated from these investments contributes to the company’s overall revenue.
Challenges and CompetitionTD Ameritrade faces challenges related to competition in the brokerage and investment services industry. The industry is highly competitive, with several brokerage firms vying for clients. Staying competitive in terms of trading fees, technological innovation, and customer support is essential for sustained growth. Meeting regulatory requirements and ensuring data security are also ongoing concerns.
Future Growth StrategiesTD Ameritrade’s future growth strategies may involve: – Digital Innovation: Continuing to invest in and enhance its online trading platforms and tools. – Client Education: Offering more educational resources to help clients make informed investment decisions. – Diversification: Expanding its range of financial products and services to cater to a broader client base.

History of TD Ameritrade

TD Ameritrade is a broker and online trading platform for common and preferred stocks, forex, options, cryptocurrency, mutual funds, and futures contracts. It also offers a range of cash management services.

TD Ameritrade was founded in 1971 by now billionaire philanthropist John Joseph Ricketts. During the 1970s, the Securities and Exchange Commission eliminated the practice of fixed brokerage commissions. TD Ameritrade – then operating as Omaha Securities – was one of the first major brokerage firms to break the mold and offer discounted commissions.

The firm would continue its pioneering culture in the following decades. It was the first to offer touch-tone phone trading in 1988. Six years later, it was involved in executing the first online trade after acquiring K. Aufhauser & Co. TD Ameritrade then helped grow and improve online trading for self-directed investors in the late 1990s. It started to offer features modern investors take for granted, including online options order entry, extended trading hours, and electronic, email-based trade confirmations.

In the modern era, TD Ameritrade continues to be a beacon of success. It now manages over 11 million client accounts representing more than $1 trillion in assets.

TD Ameritrade revenue generation

As the provider of multiple financial services, TD Ameritrade has an extremely diverse revenue generation model. This is particularly impressive considering the company offers a commission-free investment option with no platform fees, data fees, or trade minimums.

Here is a very general look at some of the main sources of revenue.

Investment platform

  • Stocks – the online trading of stocks is free, while trades made via a phone system are $5 and broker-assisted trades are $25.
  • Exchange-traded funds (ETFs) – as above, with commission-free ETFs also being free to trade.
  • Options – online options trading is subject to a 65 cent fee per contract. Trades made via the interactive phone system are $5 plus 65 cents per contract, while the broker-assisted option is available for $25 plus 65 cents per contract.
  • Futures – futures trading is available for $2.25 per contract. Exchange and regulatory fees are also applicable.
  • Forex – TD Ameritrade offers Forex currency pair trading in 10,000 unit increments. While there is no commission, the cost of the trade depends on the bid/ask spread.


With over $1 trillion in assets, TD Ameritrade also makes a significant amount of money from funds sitting idle in customer accounts. 

It does this by lending it out to other financial institutions and then making a profit on the net interest margin. This occurs when the amount of interest collected from borrowers is more than the amount of interest paid out to consumers who have funds in a checking account.

Recent figures show that 28% of company revenue comes from net interest margin.

Cash management

A cash management account allows users to manage their savings, investment, and retirement funds from a single interface.

Since TD Ameritrade is not a bank, it has partnered with certified institutions such as TD Bank to hold customers’ funds on its behalf.

Here, the company earns money through the net interest margin we mentioned in the previous section. Through its relationship with TD Bank, it also earns affiliate income for referring business to the bank. Depending on the account selected, customers may also have to pay a monthly maintenance fee. This fee may or may not be shared with TD Ameritrade.

Payment for order flow

Payment for order flow (PFOF) is compensation TD Ameritrade earns for facilitating the execution of trades.

Essentially, the company earns a referral fee for directing order flow to a specific market maker. This fee is a mere fraction of 1%, but revenue multiplies quickly as millions of trades may be facilitated daily.

Key takeaways:

  • TD Ameritrade is an established online investment platform and a broker. It was founded by John Joseph Ricketts in 1971 and is seen as a pioneer in providing investment services for individuals. It was the first to offer commission-free trading and was involved in the first online trade in 1994.
  • TD Ameritrade operates on a commission-free trading model. Therefore, it generates revenue through phone or broker-assisted trades in various types of securities. It also earns over a quarter of total revenue in net interest margin.
  • TD Ameritrade offers a checking account in partnership with banks such as TD Bank where it earns affiliate income for referring businesses. Lastly, the company generates revenue via payment for order flow.

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