How does Webull make money?

• Learn how Webull generates revenues.
• See how they support order flow and liquidity.
• Get insights into their future growth strategy.

Are you learning to trade? Webull is a Chinese fintech firm offering commission-free trading to mobile users. The platform offers a mobile alternative to traditional discount brokers. Let's look at how Webull makes money.

With over 2 million users, and having surged in popularity following Robinhood's troubled handling of meme stocks, many are asking how a commission-free broker like Webull can make money? This analysis explains how it works.

What does Webull do?

Webull is a Chinese fintech firm with offices in New York. It is a trading platform created by Fumi Technology, a China-based fintech founded in 2016 by Wang Anquan. Webull launched its trading app in 2017, successfully competing with the market leader, Robinhood. As a Chinese trading app, Webull sought to increase its legitimacy in the eyes of the American market. As a result, it opened offices in New York, hiring Anthony Denier, a Wall Street expert and veteran, to spearhead its business operations as CEO.

After launching, Webull initially focused on providing traders with better mobile trading tools, including advanced charting packages for mobile devices. With the negative press around Robinhood after the GameStop debacle in early 2021, Webull saw growth in its user base as many Robinhood users migrated to its trading platform.

How does Webull work?

Webull is essentially an online discount broker supporting mobile trading, moving away from the traditionally desktop-dominated market to provide trading tools available on the move. Users can trade stocks and financial instruments like ETFs directly from their phone, without the need to learn a sophisticated trading platform like DAS Trader or Sterling Pro.

The platform experienced huge user growth thanks to having no minimum deposit requirement and offering commission-free trades. Webull handles stock trading, as well as trading in cryptocurrency and commodities. Users can trade from their cash or margin account, and they also have the option of trading a self-directed IRA through the platform.

Traders can access Webull through iOS and Android devices and desktop platforms like Mac, Windows, and Linux OS.

How Webull makes money

Webull makes money by providing payment for order flow to large High-Frequency Trading Firms (HFTs), allowing them to make money off the spread between the buying and selling of shares. They also generate revenue from fees on short selling, interest on margin accounts, and subscription fees paid by platform users.

Payment for order flow

When a WeBull user places a trade through the platform, it doesn't go directly to the market. Instead, Webull routes the order through a market maker, like a high frequency trading firm (HFT). This model allows the HFT to trade the stock at a spread, earning commission on the trade.

Basically, Webull doesn't charge you for trades, but the HFT bank processing your order will sell it between market makers in nanoseconds, profiting on arbitrage between the "spread" or buying and selling price.

Webull works with the Apex Clearing Corporation for settling transactions, and the market maker pays Webull a commission for sending its order flow. There is much speculation about whether this is an ethical practice, but with commission-free trading offered by many brokers, we expect it's the new normal for trading.

Subscriptions

Webull made a name for itself by providing users with advanced trading and charting tools. The firm partnered with Nasdaq TotalView, offering traders on its platform with Level 2 and Level 1 market-depth data, something not available at competitors like Robinhood.

Access to level 1 data comes free of charge. However, if the user wants Level 2 data, they need to pay Webull a subscription fee of $1.99 per month.

Margin trading

Webull offers margin trading, helping users grow a small account fast. Margin lets traders leverage their account balance to make bigger gains. For instance, if you have $100 in your trading account at a 3:1 margin, you can buy up to $300 worth of stock.

Webull creates revenues from interest charged on margin loans. Margin interest rates vary between 3.99% to 6.99%.

Short selling fees

Like its income model of investing on margin, Webull offers traders the option of borrowing shares to short the market. Webull makes a profit by charging interest on the outstanding shares, paid by the trader when they close the position and settle the trade.

Traders need a margin account to access the short-selling feature on Webull. The trader pays interest on the shares for as long as they have them in the trade. Some scalper day traders hold shares for minutes, while swing investors may retain the shares for days.

Cash income

Webull is not a bank, and all its assets held under management have no FDIC protection. However, Webull insures holdings with SIPC and Apex Clearing House, providing protection for securities up to $150 million while insuring its cash on balance for up to $900,000. SIPC protects customers in the event the securities and cash that are in their accounts go missing if the brokerage firm fails, but it does not cover customer trading losses or a decline in their portfolio value.

Future growth engine

Webull continues to experience strong user growth. The company uses an influencer-based model for promoting its business. It relies on influencers on social platforms to promote Webull and push the platform to their followers.

The move was genius, helping the firm climb quickly to the number one competitor spot against market leader Robinhood.

The company saw significant growth in user base and AUM during the pandemic in 2020. With the US government issuing stimulus checks to Americans, many of them used the opportunity to fund trading accounts with Webull. In addition, the backlash against Robinhood saw Webull increase its user base to 2 million in 2020, from 200,000 the previous year.

Webull also uses clever incentives to attract new users, including issuing free stock. The company continues to innovate, with plans to launch a robo-advisory service in the future.

Competitors

Webull competes with a number of brokers and online trading apps for market share, including established brokers such as Robinhood, E*Trade,TD Ameritrade, Charles Schwab, Fidelity, and eToro. Webull also faces increased competition from newer market entrants such as Moomoo, Public, and LightSpeed.