EP05 - Digital Brokers

How brokers profit from your trades. Learn about payment for order flow (PFOF), bid-ask spreads, commission-free trading, and the hidden costs of trading platforms.

Tweet coming soon

CFD / Forex B-Book Broker (2010–2016)

I get to bet $500 for every $1?! I'm going to be rich!

And here's how this trader is about to make the biggest mistake of her life.

When a broker operates as the direct counterparty (B-Book), your trade becomes their inventory.

When you close your losing position, your entire loss amount goes directly to the broker's balance sheet, increasing their revenue.

plus the spread (the guaranteed profit)

When you win a trade, the broker is now in a losing position — the potential cost of paying out your profits.

To prevent this loss from growing, they must Hedge the position.

Winning clients cost double the capital and yield only the spread.

A losing client costs less capital and yields more profit (spread + loss).

There is a conflict of interest between service and customer.

W-Why is the platform freezing when I'm winning?!

Because the broker's business model is: the majority of clients must lose so the winners don't bankrupt them with hedging costs.

W-Where the hell did you come from?!

Also my portfolio is confidential so get out of here…

Commission-Per-Trade Era (2016–2019)

Screw this. I got a better deal!

Brokers now lets clients own stocks of their own...

Yet, certain customers still don't make money

I beat the market, but I still lost money?!

Every notification was a dinner invitation… for the broker.

Where did you come from again?!

Brokers this time get paid the more volume you trade

Of course they give you useless lines that look smart enough to make you act.

You really think if those indicators actually worked, the broker would just hand them to the public for $4.95?

B-But I worked really hard on it...

B-But I worked really hard on it…

Even if they worked, someone smarter on the other side of the world already took the trade before your click registered.

Commission-Free + PFOF Era (2020–2025)

Finally, I can stop paying for commisions~

Now I can trade all day I want~

Where and how did you sneak in this time?!

PFOF = Payment for Order Flow

PFOF is the revenue stream that allows many retail brokers to offer "zero-commission" trading. It creates a three-way loop

When you place a market order (Buy 100 shares of XYZ), your broker does not send it directly to an exchange (like NYSE or NASDAQ).

Instead, the broker sells the right to execute that order to a wholesale Market Maker (MM), such as Citadel Securities or Virtu Financial.

The MM intercepts your order and executes it using their own inventory

The MM instantly profits from the Bid-Ask Spread

The MM rebates a fraction of their spread profit back to your retail broker as the PFOF.

This payment is the broker's revenue source that subsidizes your "free" trades.

They made $1.8 billion… from 'free' trades?!

You will never see your individual cost.

It's hidden in the price itself.

S-So even 'free' trading isn't free?!

I'm still paying for commissions, but to someone I don't know?!

Is there ANY broker that doesn't screw me?!

Some still exist. They don't sell your flow or gamify your addiction.

It feels… empty.

As it should be.

The more you trade, the more someone else eats — no matter who your broker is.

YOU are the liquidity 'consumer' getting charged for your impulse.

So the ultimate broker hack is…

Don't trade too much. Buy and hold high quality companies.

Now you are richer than 99% of those broke ass -----.