Probably a good time to mention this* excellent piece on how they make money.
In short: it’s interest on cash deposits. Not payment for order flow.
* https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
In short: it’s interest on cash deposits. Not payment for order flow.
* https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...
> In short: it’s interest on cash deposits. Not payment for order flow.
Are you sure Schwab don't sell order flow?
"Order flow revenue was $139 million during 2018, $114 million for 2017, and $103 million in 2016."
https://content.schwab.com/web/retail/public/about-schwab/sc...
The one broker that is clear that that doesn't sell order flow is Interactive Brokers
Schwab's total 2018 revenue was over $10B; I expect they're more worried about losing potential and existing customers to the likes of RobinHood than they are about 1% of that revenue.
1. Any duration offered of course. You can do this at Schwab and Vanguard too with varying degrees of ease and convenience. https://thefinancebuff.com/treasury-bills-cd-money-market.ht...
It's essentially a "literally get the best (short term, stable) for your savings, always."
And it's cash-equivalent, so can be purchased and held in any cash management Fidelity account.
The only caveat I've found is that the online tools for interacting with orders can be a bit hit or miss. But just calling into their fixed income desk will get someone to do what you need ASAP. And that you have to schedule buys on Treasury's schedule. (Thursdays, so enter orders on Wednesdays, I think?)
But past that, just setting up several non-overlapping auto-buys is a great way to get good interest on a < 2 week liquid account.
And say to hell with all those "reward checking" criteria.
Respectable brokers pass at least some of the short fees to the investor. Interactive Brokers, which I use, pays back around 50%.
Cash accounts without a margin balance cannot be lent out.
Mutual funds are opaque. It's up to the fund to decide if they want to make some extra money lending their securities out to speculators. As they're holding the stocks long term and standard securities lending is over collateralized, the risk profile is relatively low compared to the extra return.
That depends on the actual security.
Currently at Schwab it is free to short a very liquid stock or ETF, because Schwab has access to a very large supply. Which means Schwab only passes along a very de minimis amount to the lender. I assume they eat this amount out of their commission.
They do of course charge appropriate fees for hard-to-borrow stocks. Every stock has a different fee.
This will probably change once Schwab stops charging commissions. Their fine print on that announcement says "Stock Borrow fees still apply". So those fees will apply to more/all stocks going forward?
For example this program at Schwab [1] where they actually pay you a small interest rate to borrow your shares.
Can they lend out your shares without permission?
[1] - https://client.schwab.com/secure/file/P-5182696/MKT33373-05....
With all the people shorting Tesla, who will own Tesla if Tesla succeeds and the price explodes?
In the extremely rare case that you end up with a negative balance, the broker will cover the shares and collect the money from you like any other debt.
The broker will handle finding shares to lend to you if you want to short. Liquidity is a separate problem, which is why you might have low spreads or not even be able to find shares to short in the first place. Your ability to short a stock is not guaranteed and up to the market conditions and broker risk. And like I described, if you borrow shares to short and the prices increases greatly, then the broker will margin call your account to buy them back forcefully.
So I am wondering: does using those brokers come with the risk that I end up owning nothing if I pick a very successful stock?
Capital markets are far bigger than you can imagine and unless you're holding millions of shares short (which is unlikely as a retail investor), it's not going to be an issue even with the most volatile penny stock.
In the miniscule chance that the shares are unable to be acquired for whatever reason, you would probably get reimbursed at the current market price, although I don't know the regulatory specifics around this and you should discuss the details with your specific broker.