How European Neobrokers
Actually Make Money
“Zero commission” is fintech’s best marketing line. But every neobroker has investors, staff, and infrastructure to pay for. This guide breaks down the six revenue streams behind free trading — and which ones actually hit your long-term returns.
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Why “free” is never actually free
Traditional brokers charged a visible commission per trade. Neobrokers removed that line from the invoice — they did not remove the need to generate revenue. They just moved it somewhere less visible.
This is not inherently dishonest. Most revenue streams are disclosed in terms and conditions, and for a passive ETF investor the actual drag is often genuinely low. But understanding the model helps you choose the right broker, enable the right features, and recognise when “free” is quietly expensive.
Most European neobrokers use some combination of these:
- Payment for Order Flow (PFOF) — routing trades to market makers for a rebate
- FX conversion spreads — markup on currency exchanges
- Securities lending — lending your shares to short sellers
- Interest margin on cash — keeping the spread between deposit rate and what they pass on
- Premium subscriptions — paid tiers with additional features
- CFDs and derivatives — the highest-margin product category
Payment for Order Flow (PFOF)
PFOF is when a broker routes your trade to a specific market maker — rather than a lit exchange — in exchange for a cash rebate. The market maker earns on the bid-ask spread; the broker receives a share.
From your perspective the trade still executes. But execution quality may be marginally worse than routing to the deepest lit market. For retail investors buying liquid ETFs, the practical difference is usually small — but it exists and is worth knowing about.
UK entity — PFOF still active under FCA rules. EU entity accounts follow MiFIR ban.
BaFin-regulated EU entity. PFOF banned from March 2024. Still uses LS Exchange for execution under restructured arrangement.
CySEC EU entity — PFOF banned. FCA UK entity — allowed. Account entity depends on your country of residence.
FX conversion spreads — the one that hits most
When you buy a USD-denominated ETF using EUR, your broker converts your currency at a rate that includes a markup over the interbank mid-market rate. That markup — 0.15% to 1.5% depending on the broker — is pure margin for them.
This is one of the most significant hidden costs for European investors because most global ETFs are priced in USD or GBP, while most European investors hold EUR. Every deposit, every buy order, and sometimes every dividend can trigger a conversion if you are not paying attention to share class currency.
| Broker | FX fee | When triggered | Verdict |
|---|---|---|---|
| Trading 212 | 0.15% | On each currency conversion at trade execution | Low |
| Trade Republic | 0% on EUR ETFs | Only if buying non-EUR assets — most ETFs quoted in EUR via LS Exchange | Low (if EUR ETFs) |
| eToro | 1.5% | On every EUR deposit and withdrawal (USD base currency) + each non-USD trade | High |
| DEGIRO | 0.25% + auto-FX | Automatic on foreign currency trades unless Manual FX is enabled | Medium |
| IBKR | ~0.002% | Explicit conversion you control — deposit EUR, convert once, hold USD | Very low |
Securities lending
Your broker can lend the shares in your portfolio to a third party — typically a hedge fund wanting to short-sell them. The borrower pays a lending fee that varies from a few basis points (large-cap ETFs) to several percent annually (hard-to-borrow stocks).
Some brokers keep 100% of the lending income. Others share a portion with you. Borrowers post collateral at 102–105% of market value, so your position is protected — but there is a small window of counterparty risk between a borrower default and collateral liquidation.
| Broker | Lending programme? | Your share | Opt-in / opt-out |
|---|---|---|---|
| Trading 212 | Yes | 50% of net income | Check account settings |
| IBKR | Yes (SYEP programme) | 50% of net income | Opt-in |
| DEGIRO (Basic) | Yes | 0% — broker keeps all | Switch to Custody to disable |
| eToro | Yes (partial) | 0% — broker keeps all | No opt-out in standard accounts |
| Trade Republic | Not disclosed | — | — |
Interest margin on cash balances
When you hold uninvested cash, your broker deposits it with a bank or the ECB and earns the prevailing deposit rate. They then decide how much — if any — to pass on to you.
In the zero-rate era (2015–2022) this earned almost nothing. Post-2022, with ECB rates reaching 4%, the interest margin on customer cash became one of the most profitable lines on a neobroker’s income statement. A broker with €5bn in customer cash earning 3.5% while passing on 2.5% keeps €50m per year from this single line.
| Broker | Interest to you | Conditions |
|---|---|---|
| Trade Republic | ECB rate (up to 3%+ in 2024) | Up to €50,000; paid monthly; requires EU bank account |
| Trading 212 | Up to 5.2% (money market funds) | Cash ISA / interest account; rate varies by currency |
| IBKR | ECB rate minus ~0.5% | Paid on balances above $10,000; tiered structure |
| DEGIRO | 0% | No interest paid — broker keeps the full margin |
| eToro | 0% | No interest on uninvested cash in standard accounts |
Premium subscriptions
Several neobrokers now offer tiered subscription models — a free base tier and a paid “premium” or “black” tier with additional features. It is a SaaS revenue layer on top of the trading business, providing predictable recurring income that does not depend on market activity levels.
€4.99/month
Metal card, higher cash interest tier, additional perks. Straightforward upgrade path for existing users.
Variable
Higher interest rates on cash, priority support, enhanced analytics. Layered onto the free Invest account.
Varies by level
Reduced spreads, account manager access, analyst calls. Tiers based on portfolio size rather than flat monthly fee.
CFDs and derivative products
Contracts for Difference (CFDs) are leveraged derivative products where you speculate on price movements without owning the underlying asset. The broker or its liquidity provider acts as counterparty — meaning when you lose, they profit directly.
- Spread on entry and exit of each position
- Overnight financing charges (swap rates)
- B-book internalisation — profit from client losses directly where used
ESMA-required regulatory disclosures show that 74–80% of retail CFD accounts lose money. CFDs are among the highest-margin products in retail financial services.
eToro’s largest revenue segment historically has been CFD trading — the free stock and ETF offering is partly a customer acquisition strategy.
Revenue model by broker
Which streams each broker actively uses for retail investors, based on publicly disclosed terms as of Q1 2026.
| Revenue stream | Trading 212 | Trade Republic | eToro |
|---|---|---|---|
| PFOF | UK entity only | Banned (EU) | Banned (EU) |
| FX spread | 0.15% | Minimal (EUR ETFs) | 1.5% |
| Securities lending | Yes — shares 50% | Not disclosed | Yes — keeps 100% |
| Interest margin | Passes most on | Passes ECB rate | Keeps all (0% to user) |
| Premium subscription | Invest+ | Black (€4.99/mo) | Club tiers |
| CFDs / derivatives | Separate CFD account | No CFDs | Core business |
What the model actually costs a passive investor
Not all revenue streams hit your pocket equally. Here is the rough impact ranking for a typical European investor contributing €500/month in UCITS ETFs.
- FX spread at 1.5% — eToro’s EUR deposit fee means €15 lost on every €1,000 before a single trade. On monthly contributions over years, this compounds into a significant drag.
- Interest not passed on — if you hold €10,000 in uninvested cash at a broker paying 0% while the ECB rate is 3%, you lose €300/year silently.
- FX spread at 0.15% — Trading 212 charges €1.50 per €1,000 converted. Meaningful on very large portfolios; negligible for most beginners.
- PFOF (EU) — banned for EU entities; minimal execution impact on liquid UCITS ETFs regardless.
- Securities lending risk — collateralised, low probability of loss for large-cap ETF holders.
- Buy EUR share classes of your ETF wherever available — eliminates FX conversion on each purchase without changing your underlying currency exposure.
- Check the FX rate before depositing — eToro’s 1.5% fee means €30 lost on a €2,000 deposit before any investment is made.
- Don’t hold large cash balances at brokers paying 0% interest. Move idle cash to a savings account or use a broker that passes on the rate (Trade Republic, IBKR).
- Review securities lending settings on Trading 212 and IBKR — opting in gives you 50% of lending income at low risk for most mainstream ETF holdings.
- Avoid the CFD account entirely if you are a passive investor. The product exists to serve a different kind of client with fundamentally different risk tolerance.
Compare the brokers in detail
Now that you understand each broker’s revenue model, see the full fee breakdowns and real-cost examples for European investors in our individual reviews.
Go deeper
Frequently asked questions
Is zero-commission trading really free?
No. Zero commission means no explicit per-trade fee, but neobrokers earn in other ways: FX conversion spreads (0.15–1.5% per exchange), interest margin on uninvested cash, securities lending income, and subscription fees. For a passive ETF investor buying EUR-denominated ETFs and staying invested, the actual hidden cost is often very low. The model becomes expensive if you convert currencies frequently or hold significant idle cash at a broker paying 0% interest.
What is PFOF and is it still legal in Europe?
Payment for Order Flow (PFOF) is when a broker routes trades to a specific market maker in exchange for a cash rebate. The EU banned PFOF for all EU-regulated brokers under the MiFIR revision, effective March 2024. UK FCA-regulated brokers can still use it. This means the same broker group may handle UK and EU client orders differently depending on which entity holds your account. For EU investors buying liquid UCITS ETFs, the practical execution quality impact post-ban is minimal.
Does Trading 212 lend out my shares?
Yes. Trading 212 operates a securities lending programme where your shares can be lent to third parties. Trading 212 shares 50% of the net lending income with you. Shares are protected by collateral at 102–105% of market value. Check your account settings for the opt-in/opt-out status. For most passive investors holding liquid UCITS ETFs, the counterparty risk is low and the income share is a minor positive.
How does Trade Republic make money if it pays interest on cash?
Trade Republic deposits customer cash with banks and earns the ECB deposit rate. They pass most — but not all — of this to customers and retain a margin. They also earn from their Black subscription (€4.99/month), order routing arrangements with LS Exchange, and FX spreads on non-EUR trades. In the high-rate environment of 2023–2024, the interest margin was a significant revenue line. As rates decline, Trade Republic’s model is shifting further toward subscriptions and product diversification.
Is eToro a good choice for long-term ETF investing in Europe?
eToro works for ETF investing but has one major friction point: a 1.5% FX conversion fee, because the platform uses USD as its base currency. Every EUR deposit converts to USD and every withdrawal reverses this — a full round trip costs you 3% in FX conversion alone. For regular monthly contributions, brokers like IBKR, Trading 212, or Trade Republic are meaningfully cheaper for buy-and-hold ETF strategies. eToro’s strength is its social investing features and copy-trading, not fee efficiency.
QuantRoutine provides educational content only. Nothing on this page is an offer, solicitation, or recommendation to buy or sell any security or to open an account with any specific broker. Investments can lose value, and past performance does not guarantee future results. You are responsible for your own investment, tax, and legal decisions. Always review each broker’s current terms, fees, and eligibility on their official website before opening or funding an account. Broker revenue model details are based on publicly disclosed terms as of Q1 2026 and are subject to change.