How Does M1 Finance Make Money from Revenue Streams like Brokerage Cash Interest

M1 Finance makes money from a variety of revenue streams, and one of the most interesting is brokerage cash interest. This is essentially a fee charged to investors for holding cash in their brokerage accounts.

M1 Finance earns this interest by investing the cash in its own high-yield savings account, which earns a higher interest rate than the standard brokerage account. This means that investors earn a higher interest rate on their cash holdings, but M1 Finance gets to keep the difference.

This may seem like a small thing, but it adds up over time, especially for larger accounts.

M1 Finance makes money through various revenue streams, each designed to provide value to clients while generating income for the company.

One key revenue stream is payment for order flow, where M1 earns $0.002 per share for all securities except OTC stocks. This payment is made by market makers who facilitate order flow and earn money on the bid-ask spread.

M1 Finance also lends out cash held in client accounts to banks, earning interest on the Federal Funds rate. This revenue stream is generated because clients hold less cash on M1 than on competing brokerages, and M1 uses fractional shares to efficiently invest client money.

Here are some of the ways M1 Finance generates revenue:

By generating revenue through these streams, M1 Finance can offer its clients a great product at a better price, while also growing its business on existing revenue streams.

Payment for order flow is a revenue stream that's often misunderstood. It's actually a way for brokerages like M1 to provide better prices to clients.

Exchanges are marketplaces where buyers and sellers interact, and they make money by pocketing the spread between the bid and ask prices. This spread is the difference between the lowest price someone will pay for a security and the highest price someone will sell it for.

Exchanges make money by matching buyers and sellers at the ask and bid prices respectively and pocketing the spread. This is a natural part of the market-making process.

There are alternative, off-exchange markets that specialize in electronic market making, which provide better prices than what's available in public markets. These industry participants pay brokerages a tiny amount per share to execute trades using their services.

Smaller spreads mean lower trading costs for clients, as the implicit cost of buying and selling a security decreases. M1 takes a payment of $0.002 per share for all securities except OTC stocks, which is a small fee compared to the benefits of tighter spreads.

Here's a breakdown of how payment for order flow works:

M1 Finance earns interest on brokerage cash by lending it out to banks on an overnight basis. The amount they receive tracks the Federal Funds rate, which is controlled by the Federal Reserve.

M1 clients hold less cash on the platform than people typically do on competing brokerages. This is because M1 uses fractional shares, allowing money to more efficiently go into the investments clients want.

The default option for M1 clients is to automatically invest cash anytime the balance goes above $25. This means there's often cash available to be lent out to banks.

Here's a breakdown of the interest rates M1 can earn on brokerage cash:

Keep in mind that M1 only lends out cash that's not immediately needed by clients. This ensures that cash is available at a moment's notice to either withdraw or make investment purchases.

M1 Finance makes trading accessible and affordable. One of the key features is commission-free stock trading, allowing investors to buy and sell stocks without paying any fees.

M1 Finance offers a range of investment options, including ETFs and stocks, but it's worth noting that only stocks and ETFs are available. If you're looking for options or mutual funds, you're out of luck.

Here are some key benefits of M1 Finance's investment and trading options:

M1 Finance's platform is user-friendly, but it does have a learning curve when it comes to creating investment pies.

Commission-Free Trading is a game-changer for investors. M1 Finance is one such platform that offers commission-free trading on stocks and ETFs.

One thing to note is that M1 Finance charges $0 commission fees on trading, which is a huge advantage for investors. However, it may not be suitable for everyone, especially those who are new to investing.

Creating a portfolio on M1 Finance can take some time to learn, as it involves creating "pies" which can be a bit overwhelming at first. But with practice, it becomes easier.

If you're looking for human financial advisors or tax loss harvesting, M1 Finance may not be the best option for you. It also doesn't offer options or mutual funds, which may limit your investment choices.

Here's a quick rundown of what M1 Finance offers:

Lending from your investment account can be a lucrative way to earn extra income. M1 Finance allows you to lend your cash balance to banks, earning interest income in the process.

This interest income is generated by the banks using your money to fund loans, effectively turning your investment account into a bank account. You can earn interest on your cash balance without having to pay any fees.

M1 Finance also lends securities, but only to high-demand borrowers, which accounts for less than 5% of the total capital on the platform. This strategy allows M1 Finance to make interest on the cash generated from lending securities.

Lending securities doesn't affect your ownership of the shares, and you can recall them at any time to sell whenever you want. The borrower pays interest on the value of the securities they borrow, which fluctuates daily based on supply and demand.

M1 Finance only lends securities in high demand, making it a calculated risk that can generate significant interest income. By lending securities, M1 Finance can access liquidity and make money from interest payments.

Lending shares to short sellers is another way M1 Finance generates revenue. Short sellers borrow shares to bet against them, and M1 Finance can profit from lending these shares.

M1 Finance is pretty close to being free to use, but there are some fees you should be aware of. M1 charges no account opening fees, no trade fees, and no deposit or withdrawal fees to/from your linked bank.

A $3 monthly platform fee will apply to clients with less than $10,000 in M1 assets or without an active M1 Personal Loan. This fee is waived for clients with an active M1 Personal Loan.

Inactivity or minimum balance fees of $50 apply to accounts with $50 or less and no trading or deposit activity for 90+ days. There are also some services that may cost you, such as account statements or wire transfers.

Here are the fees associated with M1 Finance:

Interchange fees are a percentage of the total purchase amount paid by the merchant, typically around 1%.

This fee is paid to M1's bank to cover handling costs, fraud and bad debt costs, and the risk involved in approving each payment.

An undisclosed portion of the interchange fee is shared with M1 Finance when you use your Owner's Rewards Card or make an eligible purchase with your VISA debit card linked checking account.

The interchange fee is collected by M1 Finance as an additional revenue stream, providing them with more income.

M1 is known for keeping costs low, but there are some fees you should be aware of.

The platform fee is $3 per month for clients with less than $10,000 in M1 assets or without an active M1 Personal Loan. This fee is waived if you have an active M1 Personal Loan.

There's also an inactivity fee of $50 for accounts with $50 or less and no trading or deposit activity for 90+ days.

Some services may incur additional charges, such as account statement or wire transfer fees.

Here are the fees you can expect to pay with M1:

To understand the fees and charges associated with M1 Finance LLC, let's take a look at their disclosures. Stated APY (annual percentage yield) with the M1 High-Yield Cash Account requires a minimum initial deposit of $100.

APY is solely determined by M1 Finance LLC and its partner banks, and will include administrative and account fees that may reduce earnings. Rates are subject to change without notice, so it's essential to stay informed.

The cash balance in your Cash Account is eligible for FDIC Insurance once it is swept to our partner banks and out of your brokerage account. Until the cash balance is swept to partner banks, the funds are held in a brokerage account and protected by SIPC insurance.

Other fees may apply, such as regulatory, M1 Plus membership, account closures, and ADR fees. For a complete list of fees, visit M1 Fee Schedule.

The Owner’s Rewards cash back program offers 2.5% – 10% cash back on qualifying purchases based on M1’s rewards tiers. All Standard Reward purchases receive 1.5% cash back, with a maximum of $200 cash back in aggregate per calendar month.

M1 Finance makes money through various means, but one interesting aspect is their approach to cryptocurrency trading. M1 doesn't charge commission for investing in cryptocurrencies.

Apex Crypto, however, assesses a 1% fee on all crypto transactions, which is reflected in the execution price. This fee is a result of a fee rebate agreement between M1 and Apex Crypto.

M1 Finance's business model is built on a unique approach to investing and borrowing. They allow users to create a portfolio of stocks by investing a fixed amount of money into a single stock, known as a "core holding", and then using a fractional ownership model to invest in other stocks.

By doing so, M1 Finance earns interest on the cash that users hold in their accounts, which is then used to fund the fractional ownership model. This interest is a key source of revenue for the company.

M1 Finance also makes money by charging a management fee to users who opt for their automated investment feature, which is designed to help users create and manage their portfolios. The fee is a percentage of the user's portfolio value.

This fee-based model incentivizes users to keep their money invested, rather than withdrawing it. As a result, M1 Finance can continue to earn interest on the cash that users hold in their accounts.

M1 Finance has a standard assortment of revenue streams for an investment platform, including M1 Invest, M1 Borrow, and M1 Earn.

M1 Invest generates revenue by allowing users to build their own portfolios with stocks and ETFs or invest in premade portfolios. The service has no trade fees or management fees.

M1 Borrow offers a loan service that lets users borrow up to 50% of their portfolio's value at a low interest rate, generating revenue through interest payments.

M1 Earn provides a high-yield cash account offering competitive APY on users' cash account balances, generating revenue through interest payments.

M1 Finance has managed to draw an unprecedented number of investors, with over 25,000 accounts and more than $100 million in client funds. The average user's M1 Finance account has around $4,000 in it.

M1 Finance's business model focuses on revenue streams that don't rely on fees, making up for the loss in potential revenue by making its business far more efficient and lowering operating costs.

Here are the three main services offered by M1 Finance:

M1 Finance's revenue streams are designed to benefit its customers, with the goal of offering a great product at a better price.