5 Different Ways TD Ameritrade Makes Money

About the Author

Matt Frankel, CFP®

Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. He writes personal finance and investment advice for The Ascent and its parent company The Motley Fool, with more than 4,500 published articles and a 2017 SABEW Best in Business award. Matt writes a weekly investment column (“Ask a Fool”) that is syndicated in USA Today, and his work has been regularly featured on CNBC, Fox Business, MSN Money, and many other major outlets. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University.

Does TD Ameritrade charge a monthly fee?

While there are generally no fees for maintaining your TD Ameritrade account — regardless of balance — there are certain service fees that you may incur depending on how you set up your account.

For example, there is a $2 fee for monthly paper statements for accounts with less than $10,000 in liquidation value, but the fee is waived if you opt for electronic statements instead.

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Trading Technology

With rapidly moving markets, fast execution is a top priority for investors. Order routing is the process by which an order goes from the end-user to an exchange. An order may go directly to the exchange from the customer, or it may go first to a broker who then routes the order to the exchange. As a result, the method by which a broker routes orders will determine the likelihood of receiving the best price at the time the trade order is placed. This is known as price improvement. 

TD Ameritrade uses proprietary order routing technology, and clients can also direct route orders to specific options and equities exchanges. The majority of TD Ameritrade’s orders are spray-routed, enabling trade orders to be executed within 0.04 seconds, on average. According to TD Ameritrade, their execution quality metrics cover market order sizes 1 to 1,999 shares, which makes up over 90% of their client order sizes. The broker touts a price improvement to their clients of $0.0209 per share on average, and this price improvement proves to be consistent, covering 97.5% of orders.

TD Ameritrade is one of the few brokers that offer backtesting, which is the evaluation of a particular trading strategy using historical data. Traders who wish to use this feature can do so in a variety of ways, as thinkorswim backtesting can be done using thinkscript, strategies, ondemand, or thinkback. Investors can also automate trading strategies, setting orders to trigger automatically upon a set of conditions.

Account and Research Amenities

As is expected of the larger brokers, TD Ameritrade comes loaded with account and research amenities.

Stock Screeners

Although TD Ameritrade has 25 predefined stock screens built into the screener, clients can create their own screens using a wide variety of parameters like sector, fundamental metrics, technical indicators, valuation, performance, and much more. The best tool for performing screens is the thinkorswim desktop platform, as its scan capabilities are extremely robust compared with those of the website, and it caters to the experienced trader who has used similar programs in the past. 

ETF and Mutual Fund Screeners

Similar to the stock screener, the ETF and mutual fund screeners have various predefined screens with similar in-depth criteria. For instance, the Morningstar category alone gives clients the ability to select from nearly 100 fund categories, ranging from large growth funds to alternative investment funds, such as real estate. There are even funds for investors who desire exposure to specific regions or strategies. TD Ameritrade saves the last five customized screens for future use and gives clients the ability to turn them into a watchlist.

Options Screeners

TD Ameritrade offers an option-specific screener as well as a strategy builder. Thinkorswim is a great platform for finding investment opportunities. With tools such as Options Hacker and Spread Hacker, clients can search for either simple or complex options strategies, including covered calls, iron condors, iron butterflies, verticals, diagonals, double diagonals, and so forth. Moreover, they will be able to stream real-time data based on their preferred criteria, including volatility levels, time to expiration, probability of profit, delta, spread price, maximum risk, etc.

Fixed Income Screeners

TD Ameritrade customers will also have access to a bond screening tool. The Bond Wizard allows clients to search for individual bonds and CDs, as well as build a bond ladder. They also can choose from a selection of pre-packaged bond ladders and a five-year Monthly Income Portfolio.

Tools and Calculators

Similar to many other online brokers, TD Ameritrade offers a range of tools and calculators suitable for clients who are DIY investors. Using the web platform, they will find an Income Estimator to get a sense of the income investors can expect from a given portfolio over a 12-month period. Clients also have access to a Retirement Calculator, Portfolio Planner, Retirement Income Planning Worksheet, Required Minimum Distribution Calculator, 401(k) fee analysis tool, IRA selection tool, and a Contribution and Eligibility Calculator for Small Business Retirement Plans, all of which come in handy for prudent financial planning.

Trading Idea Generators

TD Ameritrade offers a wealth of market highlights and analyst reports from industry-recognized third parties such as Dow Jones, Credit Suisse, and the Center for Financial Research and Analysis (CFRA). This library provides comprehensive stock research and recommendations on companies, industries, funds, and bonds to help clients make informed investing decisions and validate new trading ideas.

News

For no additional charge, TD Ameritrade offers a variety of third-party news sources, including real-time streaming news from the TD Ameritrade Network, Dow Jones, Benzinga, Midnight Trader, MarketWatch, numerous press release wires, TradersAudio live pit audio, CNBC Video, Benzinga Audio Squawk, Econoday calendar data, and Wall Street Horizons. TD Ameritrade web also integrates past CNBC segments into the stock-specific news pages based on stocks mentioned in the segment and provides streaming news and events via the dock. In addition to these news sources, the dock also provides access to The Wall Street Journal, Barrons, and Yahoo Finance. TD Ameritrade also delivers more than 131 hours of live-broadcast, trader-focused content daily.

Third-Party Research

Although all of TD Ameritrade’s platforms offer free charts, the brokerage firm also offers daily market reports and fee-based research. TradeWise Advisors, Inc., TD Ameritrade's affiliated advisory service, offers option trade strategy recommendations directly to the client inbox for $20 per month. In addition to the free Market Edge reports TD Ameritrade offers, clients can choose to subscribe to two levels of premium Market Edge subscriptions. The first premium tier offers real-time reports and commentary. The second tier, at $19.99 per month, offers full access to Market Edge's platform and its research, screeners, commentary, and tools.

Charting

Whether new or seasoned, TD Ameritrade's investors find the charting capabilities of the thinkorswim platform to be exceptionally robust—and better than the standard web and mobile platforms by a considerable margin. Through thinkorswim, clients can adjust their charts for size, color, study, and strategy, and insert drawings. These charts can be saved, recalled, shared, and reprogrammed.

The web platform does allow users to draw trendlines and add indicators, but the trendlines are blurry and difficult to set up. The experience of viewing a chart on the mobile app when the phone is horizontal is also less than ideal; the tabs at the top of the app occupy most of the screen space, affecting the size of the chart and its usability. Unlike most other brokerage apps, analyzing charts on the mobile app is more useful when the screen is vertical.

Dividend Reinvestment Program (DRIP)

TD Ameritrade enables clients to enroll in a dividend reinvestment program (DRIP) for dividend-paying equities.

Cash Management

Although TD Ameritrade doesn’t automatically sweep cash into a money market fund, clients have the ability to opt into the cash sweep program to earn higher interest.

SRI/ESG Research Amenities

A growing number of investors today want to align their portfolios with their specific values or beliefs. Although all of TD Ameritrade’s platforms have screening capabilities, none are specific to environmental, social, governance (ESG) criteria or socially responsible investment (SRI) factors. This can be perceived as a disadvantage as investors are seeking both financial and social returns on their invested capital. 

Customer service

To score Customer Service, StockBrokers.com partners with customer experience research firm Confero to conduct phone tests from locations throughout the United States. For our 2022 Broker Review, 159 customer service tests were conducted over six weeks. Here are the results for TD Ameritrade.

Results

  • Average Connection Time: <1 minute
  • Average Net Promoter Score: 9.3 / 10
  • Average Professionalism Score: 8.7 / 10
  • Overall Score: 9.1 / 10
  • Ranking: 1st of 13 brokers

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.

Pros: Where TD Ameritrade stands out

Fee-free funds

TD Ameritrade does right by investors here, offering more than 3,700 no-transaction-fee mutual funds. That’s a boon for investors who focus on funds. TD Ameritrade allows you to screen the funds for a variety of characteristics (though the screening function is not as useful as it could be). Each fund has a page dedicated to showing its key statistics, including holdings, performance across various time periods and more.

Investment selection

You can trade almost anything you want at TD Ameritrade – stocks, bonds, options, forex, futures and, of course, funds. And if cryptocurrency is your thing, you can trade that via futures contracts, though you won’t be able to trade it directly as you can at a number of other brokerages.

Commission-free stock and ETF trades

Like most of the online brokerage industry, TD Ameritrade has no commissions on stock and ETF trades, putting it among the leaders in the industry. The broker charges $0.65 per options contract, putting it in line with other major peers such as Charles Schwab and Merrill Edge.

Research and education

TD Ameritrade offers education for beginners on up — with live webcasts, news and analysis on almost any market-related topic. From basic “how to trade stocks” guides to arcane options trading sessions, you’ll find many of the investing education resources you’ll need to help make the most of TD Ameritrade. TD Ameritrade even takes advantage of its physical presence, offering in-house sessions for investors at its more than 175 branch locations.

Those investing in individual stocks will appreciate the broker’s research, including reports from Morningstar, Credit Suisse, CFRA, Thomson Reuters and many others. Each stock page includes access to SEC filings, earnings transcripts, and any related news, so you’re fully up to date.

Mobile apps

TD Ameritrade offers not one, but two apps, corresponding to the broker’s two trading platforms. TD Ameritrade Mobile mimics much of the more straightforward desktop platform, offering practical functionality in an easy-to-use package.

Meanwhile, the thinkorswim Mobile app transforms the thinkorswim platform into your handheld device. It offers more advanced trading, such as futures and multi-legged options, so you can trade virtually anything as long as you’re web-enabled. You can also stream video from CNBC and the TD Ameritrade Network while getting access to Level II quotes.

Wide range of account types

TD Ameritrade is also highly accommodating when it comes to the types of accounts you can open. In addition to standard types such as individual and joint taxable accounts, you’ll also be able to open custodial accounts, 529 accounts, education savings accounts, trusts and partnership accounts. Those looking for retirement accounts won’t receive short shrift either, with the standard traditional and Roth IRA accounts as well as pension and profit sharing accounts and business retirement accounts: SEP IRA, SIMPLE IRA and the solo 401(k). 

TD Ameritrade offers a wide range of types, meaning you’re highly likely to find what you need. 

TD Ameritrade features

The TD Ameritrade platform offers a lot of appealing features that will attract new and long-time investors.

Some of their best features include the following:

A wide selection of investments

TD Ameritrade allows you to invest in almost anything with a single broker. The web platform offers stocks, bonds, and the Thinkorswim upgrade will even let you trade in forex, futures, and funds.

The broker is also allowing investors to trade in cryptocurrencies through the ErisX regulator exchange. Thought cryptocurrencies are not something I recommend trading in, but if you want the option as a trader, you are free to try it out.

A plan is also in works by the broker to offer to trade in spot and futures contracts. How they implement is yet to be seen, but it does make TD Ameritrade one of the most comprehensive brokers in the market.

Easy access to the feature-rich platform

The best thing about TD Ameritrade brokerage is there are no additional trade or account value thresholds you have to meet for getting access to the Thinkorswim gold standard version. You can simply upgrade to the better version.

This differentiates TD Ameritrade from its competitors. Other brokers usually offer an interface with limited features to casual investors, and the more advanced platform is provided to more active traders.

With TD Ameritrade, you can move to the more advanced platform at any time if you feel you need advanced or in-depth technical analysis.

Guidance and research

Another considerable advantage of TD Ameritrade is

Another considerable advantage of TD Ameritrade is that it offers education and advice for new traders. The platform provides live webcasts, news, and analysis on almost every relevant market topic.

You can browse guides on pretty much everything. The platform offers a wide variety of educational resources that will help you make the best use of TD Ameritrade.

You can also get in touch with consultants directly who are working for the company. A trader can take in-house training sessions for investors held at its branch locations occasionally.

Casual investors only looking to trade in specific stocks will also appreciate the research offered by the broker. The platform provides updated reports from Morningstar, CFRA, Credit Suisse, The Street, and many other financial sources. Every stock page lists updated data from SEC filings, company earnings transcripts, and any other related news, so you will always be up to date and need not go anywhere else to read reports.

Mobile apps

TD Ameritrade is also great for trading on the move. The broker offers not one but two mobile apps! Each app corresponds to the broker’s two trading platforms.

The TD Ameritrade mobile apps are built with a similar design to their desktop versions. This makes it easy for traders to switch from the desktop version to the mobile app. The apps have a simplified user interface that offers practical functionality in an easy-to-use package.

How TD Ameritrade makes money

TD Ameritrade makes money by offering its clients a range of trading services. To support commission-free trading, TD Ameritrade generates revenues through payment for order flow, investment advisory fees, commissions on futures and options, net interest margin, and management fees.

Future growth engine

As one of the leaders in the discount trading space, TD Ameritrade is constantly keeping up with changing market trends. Its adoption of commission-free trading occurred shortly after the announcement of Charles Schwab going in the same direction.

TDA aims to draw more traders to its platform by offering advanced charting packages and a range of useful services to traders. The 2020 acquisition of TD Ameritrade by Charles Schwab for $22 billion in an all-stock deal saw the company massively increase its user base.

When the deal closed in October 2020, the combined entity had a total of $6 trillion in assets under management, with more than 28 million brokerage accounts under its umbrella. The company aims to continue its transformation of the retail trading space, offering its clients services and solutions for navigating the markets.

According to senior management, the company intends to deliver a winning combination of low-costs, industry-leading tech, and excellent customer service for clients and advisors.

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.

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