How TD Ameritrade Make Money? (Business Model Explained)

TD Ameritrade, one of the most recognized brokerage firms in the financial industry, has developed a diverse revenue model that allows it to generate income despite offering commission-free trading for many transactions.

This blog post delves into the various ways TD Ameritrade makes money, illustrating its multifaceted approach to revenue generation.

History of TD Ameritrade

The origins and evolution of TD Ameritrade trace back over several decades, marking it as one of the pioneers in the brokerage industry.

The Early Years

TD Ameritrade’s story began in 1971 when it was founded by Joe Ricketts under the name First Omaha Securities, Inc.

This early iteration of the company was among the first to offer discounted commission rates following the Securities and Exchange Commission’s (SEC) decision to eliminate fixed brokerage commissions in 1975.

Pioneering Discount Brokerage

This deregulation in the brokerage industry allowed First Omaha Securities to innovate and evolve, leading to the emergence of the discount brokerage model.

This model provided a more cost-effective way for individual investors to participate in the stock market, a significant departure from traditional full-service brokerage firms.

Expansion and Innovation

In the 1980s, the company, known then as Ameritrade Clearing Inc, continued to grow and innovate.

It was one of the first to introduce touch-tone phone trading, allowing clients to execute trades without direct broker intervention.

The Age of Online Trading

In 1994, the company made a pivotal move by launching one of the first online trading platforms, marking the beginning of a new era in self-directed online trading.

This platform revolutionized the way investors interacted with the stock market, providing unprecedented access and control.

Mergers and Growth

Over the years, TD Ameritrade underwent several mergers and acquisitions that significantly expanded its offerings and customer base.

Notable milestones include the acquisition of Datek Online Holdings in 2002, which solidified its position as a leader in online brokerage, and the merger with TD Waterhouse USA from Toronto-Dominion Bank in 2006, leading to the creation of TD Ameritrade.

Recent Developments

The most recent significant development in TD Ameritrade’s history is its acquisition by Charles Schwab Corporation, announced in 2019 and completed in 2020.

This acquisition marked a major consolidation in the brokerage industry, bringing together two of the largest brokerage firms in the United States.

Throughout its history, TD Ameritrade has been a leader in leveraging technology to democratize investment for the average person.

Its commitment to innovation and customer service has helped it maintain a significant presence in the evolving world of finance and investing.

How TD Ameritrade Make Money?

1. Stock and ETF Transactions

While TD Ameritrade advertises commission-free online trades for stocks and ETFs, there are fees associated with certain types of transactions.

For instance, trades made using the Interactive Voice Response Phone System incur a $5 fee, and broker-assisted trades come with a $25 flat fee.

Additionally, over-the-counter (OTC) trades are subject to a $6.95 fee per transaction​​.

2. Mutual Fund Transactions

TD Ameritrade imposes fees for purchasing no-load mutual funds, with charges up to $49.95 for most funds or $74.95 for certain fund families.

However, it’s important to note that there are no charges for mutual fund transactions that have a load or are no-transaction-fee (NTF)​​.

3. Options Contracts

Although no commission is paid for online stock options contracts, there is a separate fee of $0.65 per contract.

This fee structure is slightly modified for transactions made through the Interactive Voice Response Phone System or with broker assistance, where additional fees apply​​.

4. Futures Contracts

TD Ameritrade also offers futures trading, charging a $2.25 fee per futures contract.

Alongside this, traders must also pay exchange and regulatory fees​​.

5. Margin Trading Fees

Investors using margin accounts are subject to margin lending rates.

These rates can fluctuate based on prevailing interest rate conditions, and as of the latest information, the margin interest rate stood at 8.25%​​.

6. Managed Account Fees

TD Ameritrade provides managed accounts with various fee structures based on the account type.

The fees for these investment advisory services range from 0.30% to 1.25%​​.

7. Securities Transactions

Certain securities transactions include commissions both when purchased and sold.

For example, non-NTF mutual funds incur a fee of $49.99, and U.S. Treasury bonds cost about $25 when purchased at auction​​.

8. Hidden Commissions

It’s important to be aware that TD Ameritrade might include hidden commissions in certain products, such as CDs, where a markup on purchases and a markdown on sales are applied​​.

9. Payment for Order Flow

TD Ameritrade earns revenue through payment for order flow, where it routes client transactions through high-frequency trading firms before they reach the market.

These firms arbitrage the bid-ask spread and pay TD Ameritrade a commission for the order flow​​.

10. Net Interest Margin

The firm also profits by leveraging the cash value of client accounts, loaning money to financial institutions and earning interest on these loans.

This model contributed significantly to its income, accounting for about 28% of its earnings​​.

How TD Ameritrade Works

How TD Ameritrade Works

TD Ameritrade operates as a brokerage firm that offers a wide range of services catering to various types of investors, from beginners to experienced traders.

Here’s a detailed look at how it functions:

Accessibility and Account Setup

TD Ameritrade is known for its accessibility to a broad audience. It provides services to traders in the United States and over 100 other countries.

Setting up an account with TD Ameritrade is straightforward, with no minimum deposit required for standard accounts.

However, a minimum balance of $2,000 is necessary for margin accounts​​.

Diverse Trading Options

TD Ameritrade offers a comprehensive platform that includes trading in stocks, ETFs, options, futures, and more.

Users have access to a wide array of investment options, including mutual funds and fixed-income investments.

The platform also supports trading in cryptocurrencies, making it a one-stop-shop for various trading and investment needs​​​​.

Discount Brokerage Services

As a discount broker, TD Ameritrade offers lower fees compared to traditional brokerage firms.

This cost-effective approach is particularly appealing to self-directed traders who prefer to manage their investments independently.

The company’s online platform connects traders directly to financial markets, allowing for efficient execution of trades​​.

Advanced Technology and Tools

TD Ameritrade provides advanced trading tools and platforms like thinkorswim®, which cater to both novice and experienced traders.

These tools offer comprehensive analysis, charting capabilities, and real-time data, empowering users to make informed trading decisions.

Managed Accounts and Advisory Services

For clients who prefer a more hands-off approach, TD Ameritrade offers managed accounts where trading decisions are made by experienced advisors.

These services come with varying fee structures based on the type of managed account​​.

Education and Research Resources

A standout feature of TD Ameritrade is its commitment to investor education.

The firm offers extensive resources, including webcasts, articles, videos, and immersive courses that cover various aspects of trading and investing.

These resources are valuable for both beginners and seasoned investors looking to expand their knowledge.

Mobile Trading

Recognizing the importance of mobility in today’s world, TD Ameritrade offers a robust mobile trading application.

This app allows users to manage their investments, execute trades, and access research and educational materials on the go.

Customer Support

TD Ameritrade places a strong emphasis on customer service, providing support through various channels.

Clients can reach out for assistance via phone, email, or live chat, ensuring they have the help they need to navigate their investment journey.

TD Ameritrade Funding, Revenue, & Valuation

TD Ameritrade, a notable player in the financial services sector, has a history that dates back to 1975.

As a subsidiary of Charles Schwab & Co., Inc., it has carved out a significant presence in the industry.


TD Ameritrade’s journey includes notable funding activities. Historically, the company has raised $35.3 million in funding.

This capital has played a crucial role in its growth and expansion over the years.

Revenue Generation

Regarding revenue, TD Ameritrade generates a substantial amount annually. Its estimated annual revenue $6 billion.

This significant revenue stream underscores TD Ameritrade’s strong position in the market and reflects its diverse income sources, ranging from brokerage services to managed accounts and interest on loans.

Employee Base

The company’s workforce is a testament to its size and operational scope.

With an estimated employee count ranging from 5,000 to 10,000, TD Ameritrade showcases its capacity to manage a large-scale operation, serving a vast clientele with varied financial needs and preferences.

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Market Position and Future Prospects

As part of the larger Charles Schwab & Co., Inc., TD Ameritrade benefits from the strength and reputation of its parent company.

This relationship not only bolsters its market position but also provides a platform for continued growth and innovation in the financial services sector.

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