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5 Different Ways TD Ameritrade Makes Money For Charles Schwab

Updated: Mar. 23, 2022By: Kimberlee Leonard

TD Ameritrade is an online brokerage that offers trading in stocks, futures contracts, exchange-traded funds (ETFs), forex, options, mutual funds, and bonds. It also offers margin lending and cash management services. Its popular no-fee trading platform is good for investors who want to maximize their resources. Other services carry fees which drive revenues for TD Ameritrade.

Charles Schwab To Purchase TD Ameritrade

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What Is TD Ameritrade?

TD Ameritrade has been providing brokerage services to clients since 2006 when Ameritrade acquired TD Waterhouse from Toronto-Dominion Bank and the combined company was thereafter named TD Ameritrade. It immediately became a leader in the fixed commissions market and has since gone to a no-fee trading platform for stocks, ETFs, and options. The company was acquired by Charles Schwab Corporation (SCHW) in 2020. SCHW trades on the New York Stock Exchange.

TD Ameritrade Business Model

TD Ameritrade is a discount brokerage firm that competes with companies like E*Trade, Legg Mason, BlackRock, and Pershing. Discount brokerage firms charge a flat nominal fee for trades. In TD Ameritrade's case, many stocks, ETFs, and options are purchased for no commission or fee. The company makes money on other types of trades that they facilitate as well as through margin lending.

As a discount brokerage, TD Ameritrade has more than 11 million customers and is considered one of the largest discount firms in the country. For the fiscal year 2020, TD Ameritrade maintained more than $1 trillion in assets under management.

Currently, the company allows investors to buy and sell:

  • Common stocks

  • Preferred stocks

  • Futures contracts

  • Exchange-traded funds

  • Forex

  • Options

  • Mutual funds

  • Fixed income investments

The company also offers margin accounts to investors where it makes money on extended credit and cash management services. As well, it does provide full brokerage services to some investors.

5 Ways TD Ameritrade Makes Money

1. Stock and ETF Transactions

While TD Ameritrade does not charge a fee for online stock and ETF trades, facilitated transactions do have a fee. If an investor uses the Interactive Voice Response Phone System, they are charged a $5 fee. If the trade is broker-assisted, there is a $25 flat fee. There is also a $6.95 fee per transaction for over-the-counter (OTC) trades.

Tip: Investors looking to gain investment exposure to TD Ameritrade can do so via the publicly traded shares of The Charles Schwab Corp.”

2. Mutual Fund Transactions

TD Ameritrade changes fees for no-load mutual fund purchases. These fees can be up to $49.95 for most funds or $74.95 for certain fund families that don’t pay TD Ameritrade for record-keeping. There's no charges levied on mutual fund transactions that have a load, nor no-transaction-fee (NTF).

3. Options Contracts

There is no commission paid for online stock options contracts that are bought and sold, though there is a separate per contract fee of $0.65. If the Interactive Voice Response Phone System is used, that adds $5 to the transaction while broker-assisted contracts have $25 added.

4. Futures Contracts

Investors can participate in futures markets at TD Ameritrade. Traders pay a $2.25 fee per futures contract transacted. There are also exchange fees and regulatory fees that must be paid that TD Ameritrade does not control.

5. Margin Trading Fees

Margin lending rates are charged to investors borrowing money to conduct transactions. The fee may change based on interest rate conditions. The most recent posted margin interest rate is 8.25%

Warning: Buying any investment on margin creates leverage which can drive larger profits on an investors' capital, but that leverage also increases potential losses.

Charles Schwab On Seeking Alpha

The Charles Schwab Corporation, which owns TD Ameritrade, is a publicly traded company. Investors interested in learning more about Charles Schwab's business or financials can find useful information and analysis at Seeking Alpha. Schwab's stock quote page alone contains company analysis, recent news, a chart and basic statistics, and a high-level review of the stock's Quant Ratings and Factor Grades.

Investors wishing to dig into the company's financials can do so from the menu bar as seen below:

Investors can unlock detailed stock information with a Premium Subscription.

Bottom Line

TD Ameritrade is a brokerage that offers commission-free trades for most stocks, but makes money off from other product trades, facilitating transactions, and margin lending. Investors should perform due diligence on any company before investing in the stock.

This article was written by

Kimberlee Leonard profile picture
Kimberlee brings professional experience to her writing. She started as a FINRA Series 7 broker and later transitioned her career into owning an insurance agency and preparing taxes.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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