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Webull is a commission free stock and crypto trading platform. Right now, Investing Simple readers can get up to 12 free stocks with their current promotion. Open an account to receive 2 free fractional shares worth $3 to $300. Deposit any amount of money to receive 4 to 10 more free fractional shares worth $7 to $3,000. Promotion expires 10/31/2022.
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Written by Ed Canty, CFP® on January 6, 2022
Category: 
FTC Disclosure

How Does Webull Make Money?

There are countless free investing apps available today to new investors.

In the past, a commission was required to place trades on stocks or ETFs. In fact, it was not uncommon to pay as much as $7 to $10 per trade.

Now, brokerages are offering $0 in fees and commissions and many of them offer $0 minimum balances.

If you are like most people, this could jump out as a red flag. You know the old saying, there is no such thing as a free lunch.

Webull is an exciting and promising commission-free stock trading app that launched in May of 2018.

But since we have been writing about Webull on the blog for almost 2 years, we have received several questions like "Is Webull Safe" or "Is Webull Selling My Data?"

Short answer: Webull is 100% safe, the company is SIPC insured and according to Webull's terms and conditions it does not sell any of your financial data. 

However, Webull is also a for-profit business. Webull and other free investing apps are making money, they just do it in less conventional ways. These brokerages realized there are ways to make money outside of charging commissions and fees to customers.

Commission-free trading platforms paved the path and Webull saw an opportunity to offer users a more robust trading platform. This step has made Webull a platform that should rise to the top of the heap. Webull picks up where other platforms fall short in terms of the features and data available to traders.

If you are interested in learning more about Webull, check out our full review of the Webull investing app! For this article, we are going to focus on the ways Webull makes its money.

If you prefer watching instead, check out our video below!

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Summary

Webull makes money in a few different ways outside of charging fees and commissions to customers. Here are the ways that Webull makes its money:

  • Paid subscriptions for various levels of data
  • Interest on margin accounts
  • Interest on non-invested cash held within brokerage accounts
  • Payment for order flow (Webull is paid fractions of a penny per share for directing order flow)
  • Interest on loaned securities to short sellers
  • Miscellaneous fees

All of these add up and allow Webull to operate a healthy business which allows them to stay afloat and earn profits.

That being said, let's get into the different ways that Webull makes money.

1. Paid Subscriptions

The most obvious way that Webull is making money is by offering paid subscriptions for more in-depth data offerings.

It is important to mention that the data for US markets is 100% free, meaning you do not need to pay for anything to trade with it.

For example, if you wanted access to TST Level-1 you would pay Webull $4.99 a month or $53.99 a year. If you’re a trader looking for better features and up-to-the-minute prices, you might want to sign up for this.

There are different levels of quotation which show you more granular data. Traders find this data to be very useful in identifying micro-trends to capitalize on. As such, they are often willing to pay a monthly subscription to access this data.

Webull Free Training

We put together a free 30 minute video training that walks you through the entire process, step by step. This training will help you get up and running in no time at all.

GET THE GUIDE

2. Margin Fees

Although we don't recommend it, a popular investing strategy is buying on margin.

Webull offers trading on margin on its platform. In the stock market, margin trading happens when individual investors buy more stocks than they can afford. They do this by borrowing money from a broker to make investments.

This is where a brokerage will extend a loan to you to buy additional shares of stocks or ETFs. In most cases, they match you dollar for dollar.

So, if you had $5,000 invested, your brokerage could loan you an additional $5,000 giving you $10,000 of buying power.

You would pay interest on the $5,000 loaned to you and the stocks/ETFs in your portfolio would serve as collateral.

When an investor uses margin to buy or sell securities, he pays for them using a combination of his own funds and borrowed money from a broker.

Webull charges fees to trade on margin beginning at 3.99% at the low end and 6.99% on the high end. However, this fluctuates with market rates. Follow this link for an updated fee schedule.

Interest received from margin is another way Webull and other free investing apps make money.

Trading on margin is something that only advanced traders should consider. The majority of us will stick to investing with the money that we have.

3. Interest On Cash

When you hold idle cash within your brokerage account, you are not earning any interest on this cash. This is fairly common for free brokerages. However, some brokerages do offer interest on your cash but it usually comes with an annual or monthly fee. Webull does not have this option.

Instead, Webull will borrow the cash that is in your account and invest it for short-term gains or loan it out to others.

Webull will make a small amount of interest on any idle cash held in accounts across the platform.

The cash is invested in short-term funds or money market accounts in order to capitalize on cash not being put to use. It may seem like a small amount to gain for Webull, but investing tiny amounts of cash across all their accounts can add up to a significant amount of interest over time.

You might be worried about this, but this is a practice that nearly every brokerage and financial institution follows, including your local bank.

SIPC insurance also protects the cash held within your account for the purpose of investing so you are insured if something happens to your cash as a result of mismanagement.

4. Order Flow

The next way Webull makes money is by directing order flow.

When you place a buy or a sell order, Webull has some say in which market maker receives that order.

Many free brokerages such as Webull make money by selling order flow. Order flow or transaction flow happens when someone believes the price of a security will move and then decides to execute an order (transaction) in the market.

Webull earns a fraction of a cent for every trade placed. While this may not seem significant, in a robust trading platform, it quickly adds up.

This one is a little confusing, we get it.

Basically, market makers (such as large banks) might pay Webull fractions of a cent per share to send orders their way, instead of to a different market maker.

When millions of shares trade on Webull daily, these fractions of pennies add up to millions of dollars.

5. Short Seller Fees

Brokerages loan shares to short sellers and charge interest in the process. Often these shares that are being loaned out are actually owned by you. Like earning interest on non-invested cash, this is a very common practice in the finance industry.

However, just like your cash, your shares are also protected by SIPC insurance.

By lending shares out to short sellers, Webull can earn interest. 

Short selling is when investors sell stocks they don’t own. Short sellers believe the price of the stock will fall or want to hedge against potential price volatility in securities they already own.

If the price of the stock drops, short sellers buy the stock at a lower price and make a profit. If the price of the stock rises, short sellers will incur a loss.

The cost for a short sale is the fee or interest incurred for borrowing the stock. The interest charged by Webull changes every day for every available stock and is charged on a daily basis. This is a very profitable activity for brokerages.

Keep in mind that to short sell on Webull, you need a margin account and your net account value must be $2,000 or higher.

6. Other Fees

While Webull does not charge any trading fees or commissions, there are some miscellaneous fees you should be aware of.

If you're transferring stocks from Webull to an outside broker, there is a $75 fee for each outgoing transfer.

That’s a minuscule fee considering the amount you may be transferring!

It’s important to note that Webull does not benefit financially from security transfers. The outgoing transfer fees are charged by APEX, its clearing firm.

Webull does not charge any fees for incoming transfers, but your outgoing broker may charge you for transferring out. We can’t say exactly what that might be since the specific amount of fees varies by broker. You will need to check with your outgoing broker for more info.

How Does Webull Make Money: Final Thoughts

By being somewhat creative in making a profit, Webull offers an outstanding investment platform with most features free of charge.

The platform has some additional features, such as margin trading and paid global market data, that allow them to make money.

In addition, Webull also follows the same practices many other brokerages do to make money. The company loans shares to short sellers, collects interest on non-invested cash, and earns micropayments for directing order flow.

Due to the venture capital being pumped into these free investing apps, Webull can offer great incentives such as a free stock just for signing up and funding an account.

Rest assured that Webull is just as safe and secure as any other brokerage and your funds are protected in case anything should go amiss.

Article written by Ed Canty, CFP®
Ed is a CERTIFIED FINANCIAL PLANNER™. At his day job, Ed helps clients plan for retirement, manage their investments, and navigate their tax situation. In his free time, Ed enjoys golfing, traveling, fishing, and wrenching on his old car.

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