How Does WeBull Make Money?

WeBull is a zero-commission, US-based stock brokerage. They are well-known for charging zero commissions on transactions through their website, and they have absolutely no minimum deposits for trading either. To an outsider, this may seem as if WeBull is either not making any money at all, or they are a pure scam. Neither is true. Of course, the business model WeBull follows is unlikely to make them as much money as other brokers, but they still make a rather sizeable sum of cash. Let’s take a look.

Who is WeBull?

Before we go any further, it is probably worth talking a little bit about who WeBull is, as well as how the stock trading industry actually works.

As we said before; WeBull is a stock brokerage. This pretty much boils down to being a company that you can buy and sell stocks through. They do have a couple of other services, but most of what they do involves buying and selling stocks in the United States. They operate purely online.

Now, running a stock brokerage in the United States is terribly expensive. You have to deal with regular costs such as:

  • Regulatory compliance
  • Regular audits
  • Trade clearing
  • The costs to run the services
  • Staffing costs. You need experienced traders working for you.

Running a stock brokerage isn’t for everybody, and you would likely need millions of dollars to start one, let alone continue to run one for years and years. WeBull has managed this, somehow.

Most stock brokerages will charge a commission on all their trades. This provides a viable source of income for them. In fact, WeBull estimates that the average brokerage receives about 75% of income through commissions. So, if you aren’t charging a commission on your services, then you will be waving goodbye to a rather sizeable sum of cash. This means that you need to make money in other ways.

So, how does WeBull make money? They obviously are not doing this out of the goodness of their hearts, right?

There are no fees associated with trading stocks on WeBull 

We want to make it clear right off the bat that there are no ‘hidden fees’ for trading on WeBull. When they say the following, they really mean it:

  • No commissions
  • No fees
  • No trading minimums

Unlike most other ‘free brokerages’, there is no membership fee to work with WeBull either. It is simply a case of signing up and starting to make your trades. Assuming you are only ever trading your own cash through the site, there will not be any fees to pay to WeBull ever. They will still make a tiny bit of cash off of your transaction (in other ways), but you will not have to pay anything personally.

The WeBull marketing material makes all of this clear, and they make it clear that they do make money using other methods. The same methods other brokerages use to make money (although, they tend not to be clear). WeBull claims that this method is to their customer’s benefit. After all, if their income doesn’t rely on people trading as much as possible and then grabbing a bit of commission from those trades, it means that WeBull will not be encouraging you to enter into stupid trades that may end up losing you a little bit of money.

It is important to note that there ARE fees associated with trading stocks that WeBull does not profit from. These fees are minimal (you will likely not notice them on smaller trades), and they are used to pay SEC and FINRA for their services. WeBull makes it clear they do not earn anything from these fees, and everything you need to pay is told to you upfront.

Subscriptions 

As we stated; WeBull does not require a subscription in order to make trades. However, they do offer subscription services to make their platform a little bit easier to use i.e. to offer more features to people that are trading regularly on the platform.

These features tend to provide ‘better data’ through their trading platform. This allows people to make more-informed trades without the need to navigate several other websites. It is likely that a rather sizeable sum of cash is generated through their subscription service. It costs just $4.99 per month, and if somebody is serious about trading, they will gladly pay for a subscription that this is affordable. You could feasibly make this money back in just a single trade.

Of course, the cost of their subscription is not required if you want to trade on their platform. However, you never really feel as if you have everything available to you unless you stump up the cash to use it. We have no doubt that there are plenty of people trading on WeBull that are not paying monthly for their subscription. This is a stark contrast to most other no commission brokerages that essentially make their platform useless unless you give them cash.

Payment for Order Flow

You would think that all buy and sell orders are processed by the brokerage, but they are not. Well, at least not all of them. They often do not have the processing power for it, and by bundling the transaction with trades made by other brokerages, there could be cost savings.

WeBull is known for making money through a process known as payment for order flow. This means that they essentially ‘sell’ the trades they make to third parties. It will then be the third party that processes them. Of course, the third party makes a bit of cash on the trade, and a small proportion of this money is given to WeBull as thanks for sending the transaction their way. We can’t stress enough that this cost is dreadfully low. Most brokers pay around a penny per stock, so WeBull needs to be dealing with a lot of trades to profit substantially like this.

Don’t worry. WeBull is not selling your personal information here. They are really just selling the right for another party to process the trade for them. They work with several different partners, so the trade is routed to the best partner for the maximum benefit of everybody involved. In fact, it even benefits you, the trader, because bundling transactions helps to keep stock trade processing costs low. This helps contribute to the zero-commission service.

This can work the other way too. Instead of WeBull sending orders for processing to other companies, they can receive orders from other companies. On busy days on the market, even the largest of brokerages may not have the processing capabilities for large numbers of transactions, so they send a few of them off to other smaller, brokerages where they can be processed. They will then be paying a small fee for this service. The fee isn’t going to be huge, but if you have a lot of companies doing this, the income is really going to start to add up.

In the past, this type of way of making money would attract a lot of criticism, despite pretty much every brokerage engaging in it to some degree. This is because people were not happy that a company would be receiving a small amount of cash on a trade by sending it to specific parties. Many people felt that this was a conflict of interest. However, nowadays this is not much of a concern. The SEC now require companies like WeBull to tell the customer when they are profiting using this method (and they will, on almost 100% of their trades)

Interest

This is where WeBull likely makes a lot of their money.

Due to their no-commission model, they attract a lot of potential traders to their website. By all accounts, WeBull has over 9-million users. Of course, not all of these are active traders, but we wouldn’t be surprised if a sizeable portion of them have traded through the platform.

Now, most traders are not going to be tying up all of their cash in buying stocks. This is not a good idea. Instead, they will leave a good chunk of their cash just sitting in their WeBull account just in case.

Of course, while the money that is just sitting there isn’t doing much for the trader, it is doing a lot for WeBull. This is because WeBull can make money on it. They earn interest on unused customer deposits.

WeBull can take the money just sitting in their bank account and make less-risky investments with it. This is pretty much the same model that banks follow. They ‘invest’ money that they have sitting in bank accounts held with them. If WeBull make the right investments, then they will make money on the cash that they have sitting about. It is likely that the amount of cash they make per individual customer is rather small,hence why they need thousands and thousands of active users to make this work. If you pool the unused money resources from thousands of users, then you can make a rather nice amount of profit.

Of course, this method of making money is not without its risks. If WeBull invests wisely, then they will make money. However, if they make the wrong decisions, they will lose it. After all, their customers are probably not going to be too happy if WeBull was unable to give them their money when they ask for it. This is why WeBull needs to stick to the less-risky investments. We can’t imagine that they are making buckets full of cash on interest, but it probably gives them a steady cash flow.

Margin Trading

We are not going to go into the intricacies of margin trading here. This is because it is a rather complicated way of trading. However, it is something that almost all regular traders will engage in, particularly because it offers high reward, but also carries a lot of risk.

Perhaps the best way to describe margin trading is as ‘a loan’. This isn’t quite true, but it is close enough.

If you wish to do margin trading through WeBull, then you will need to have a minimum of $2,000 in your account. If you have this minimum in your account, but see a trade that is a little bit out of your reach, WeBull can lend you the money that you need to carry out this trade. At all times, you will need to pay at least 50% of the trade from your own pocket, and WeBull will then fund the other 50%. Although, you are limited to the number of times you can do this per day.

With margin trading, you will be able to purchase more stock than you could normally afford, which could lead to potentially higher returns. Although, of course, if the stock value plummets drastically, you will be left owing WeBull money. After all, you do need to pay your loan back.

Just like all loans, margin trading will have fees tied to it. WeBull currently charges 6.99% on the money they lend you, although these fees go down the more you trade on margin. This is important because, of course, if you lose everything they will also lose their money. They need some sort of income due to the risk that they are facing too.

Stock Loans

Finally, WeBull also claim that they make money with stock loans. Again, this is not something that we are going to go into the intricacies of, because it is a rather complicated way of making money.

Stock loans are essentially when a trader borrows stock with the intention of short selling it. There are fees associated with doing this, and the fees will be dependent on the stock that is being borrowed, as well as the risk that is being assumed. These fees will change daily.

Conclusion

While WeBull does not charge commission on trades made through them, they will profit in other ways. However, the other ways in which they profit are unlikely to have a major impact on the average investor.

References

  • https://www.webull.com/blog/5-Zero-Commission-Brokerages-How-Do-They-Make-Money
  • https://www.webull.com/pricing
  • https://www.investingsimple.com/how-does-webull-make-money/#:~:text=Webull%20makes%20money%20in%20a,subscriptions%20for%20global%20market%20data.
  • https://www.investopedia.com/terms/s/stock-loan-fee.asp

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