How Trading Platforms Make Money

When I first started trading, I found myself wondering: “How do trading platforms make money if they don’t charge upfront fees?” It’s a great question and one that every trader should understand before diving into the markets.

While many brokers advertise themselves as “commission-free” or boast ultra-low spreads, the truth is that they have to make money somehow. And while this isn’t a bad thing—after all, they’re running a business—it’s important for you to understand the costs involved so you can make informed decisions.

In this guide, I’ll break down exactly how trading platforms generate revenue, how to spot hidden costs, and why choosing a low-cost broker can make a big difference to your bottom line.

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How Trading Platforms & Brokers Make Money

1. Spreads: The Most Common Revenue Stream

The spread is the difference between the bid (buy) price and the ask (sell) price of an asset. Essentially, it’s a small markup added by the broker.

For example, if the EUR/USD pair has a bid price of 1.1000 and an ask price of 1.1002, the spread is 0.2 pips. That tiny difference may not seem like much, but for high-volume traders—or those trading frequently—it adds up quickly.

How Spreads Affect You:

The tighter the spread, the less it costs you to enter and exit a trade. This is why low-spread brokers like Pepperstone and Vantage are so popular among scalpers and day traders.

Fixed vs. Variable Spreads:

• Fixed Spreads: Stay the same regardless of market conditions. These are often offered by market-maker brokers.
• Variable Spreads: Fluctuate depending on market volatility and liquidity. ECN/STP brokers usually offer variable spreads, which can be tighter during normal conditions but widen during major news events.

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2. Commissions on Trades

Some brokers charge a commission per trade instead of, or in addition to, spreads. Commissions are often associated with ECN (Electronic Communication Network) accounts, where you get access to raw market spreads.

For example, a broker might charge $7 per round lot (100,000 units of currency) traded. This structure is common among brokers targeting professional or high-frequency traders, as the raw spreads are usually 0.0–0.1 pips, making commissions worthwhile.

Who Benefits from Commission-Based Accounts?

• Scalpers and day traders who benefit from raw spreads.
• Traders who want transparency in costs.

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3. Overnight Fees (Swap Rates)

If you hold a position overnight, you may be charged a swap rate or overnight financing fee. These fees are essentially the cost of borrowing the money required to keep your trade open.

For example, if you’re trading on margin (using leverage), your broker lends you the funds to control a larger position. Overnight fees cover the cost of this borrowing.

How to Avoid or Minimise Swap Fees:

• Close trades before the end of the trading day to avoid overnight fees.
• Look for brokers offering swap-free accounts (common for Islamic traders).

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4. Market Making: Profit from Client Losses

OK, a controversial one here, but a common practice with some brokers. Essentially, some brokers act as market makers, meaning they create the market for your trades instead of routing them to the interbank market. Essentially, they take the opposite side of your trade.

How Market Makers Make Money:

• From the Spread: By widening it slightly compared to what’s available in the interbank market.
• From Client Losses: Since they’re the counterparty to your trades, if you lose, they profit.

Should You Avoid Market Makers?

Not necessarily. Market makers can offer benefits like fixed spreads and smaller minimum trade sizes. However, they may also be prone to conflict of interest, especially if they manipulate prices.

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5. Inactivity Fees

Brokers often charge an inactivity fee if your account remains dormant for a certain period (e.g., 12 months). These fees can range from £10 to £50 per month, depending on the broker.

How to Avoid Inactivity Fees:

• Trade at least once within the inactivity period.
• Choose brokers with no inactivity fees (like Pepperstone or XTB).

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6. Deposit and Withdrawal Fees

Not a great method here but it’s still a method by which they get revenue… While many brokers advertise free deposits and withdrawals, some charge small fees, particularly for certain payment methods (e.g., international bank transfers). Always read our broker reviews to check if the broker you are interested in has any deposit or withdrawal fees.

Tips to Save on Deposit/Withdrawal Fees:

• Use e-wallets like PayPal or Skrill, which often have lower fees.
• Check if your broker covers withdrawal costs.

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7. Markup on Currency Conversion

If you’re trading in a currency different from your account currency, your broker may charge a small markup for converting funds.

Example:

If your trading account is in GBP and you trade USD, profits and losses will need to be converted back into GBP, often at a slightly worse rate than the market rate.

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8. Add-On Features or Tools

Some brokers offer premium services for a fee, such as:

• VPS (Virtual Private Server) hosting for automated trading.
• Premium trading signals or market analysis.
• Advanced charting tools.

While these can be useful, it’s worth evaluating whether the benefits justify the cost.

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How to Choose a Low-Cost Broker

Whilst there are many brokers who offer great spreads, Pepperstone & IG remain standout performers on this front with low spreads and a huge range of tradable assets. Here is how you can analyse what a low cost broker looks like:

1. Compare Spreads and Fees

Spreads and commissions are the most significant costs for active traders. Look for brokers with tight spreads (0.0–0.8 pips on major pairs) and low commissions (£5–£7 per lot).

2. Check for Hidden Fees

Always read the fine print. Watch out for inactivity fees, deposit/withdrawal charges, or high overnight fees. Keep in min it’s not just the cost of the inactivity fee that you have to watch out for, it’s also how quickly that kicks in! Plus500 kicks in within three months and IG is a far more generous 2 years!

3. Choose FCA-Regulated Brokers

FCA regulation ensures your funds are protected, and brokers adhere to strict ethical standards. It also makes them less likely to engage in questionable practices like price manipulation.

4. Look for Demo Accounts

Before committing real money, test the platform using a demo account to understand the fee structure and execution quality.

5. Avoid Over-Leveraging

While high leverage (e.g., 500:1) may seem appealing, it amplifies both potential profits and losses. Stick to FCA-regulated brokers offering sensible leverage (30:1 for retail clients).

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Why Low Costs Matter

It may sound obvious but trading fees can significantly eat into your profits over time, especially if you’re a frequent trader.

Example:

• You trade 1 lot of EUR/USD (worth $100,000) five times a day.
• Broker A charges a 1.0 pip spread ($10 per trade).
• Broker B charges a 0.5 pip spread ($5 per trade).

By the end of the day, you’ve paid $50 with Broker A vs. $25 with Broker B. Over a month, that’s a difference of $500—money that could stay in your account! It might not even feel like that when you are in the midst of your profit spree or even when you are trading day-to-day but trust me, if you are like me and trade for long enough, you’ll quickly notice when you are entered into a trade significantly below or above the market price and have to try and claw your way back into profit – these are significant moves whether you are scalping or day trading.

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Our Thoughts

Although as a trader you might find all, or at least some of these ways a broker make money a little bit weird or uncomfortable, it’s important to understand that these brokers are in fact a retail traders lifeline to the financial markets. The best part is, you always have a choice of which broker you can choose and which you don’t want to trade with. If you are uncomfortable with a particular broker’s fees, there is no obligation for you to stay, switching brokers is common and encouraged, especially if you are new to trading.

By choosing a broker with transparent fees, tight spreads, and FCA regulation, you’re setting yourself up for success. Personally, I’ve found that low-cost brokers like Pepperstone, IG, and Forex.com strike a great balance between affordability and quality. But remember, the cheapest option isn’t always the best—execution speed, platform reliability, and customer support are equally important.

Take your time to compare brokers, test their demo accounts, and align their fee structures with your trading goals. The less you pay in fees, the more of your hard-earned profits you get to keep.

Happy trading!