How Do Brokerages Offering “Commission-Free” Options Trading Generate Revenue?

Brokerages offering "commission-free" options trading generate revenue primarily through two methods. First, they profit from the interest earned on the uninvested cash balances held in customer accounts.

Second, and more controversially, they engage in Payment for Order Flow (PFOF). In PFOF, the brokerage sells the client's order to a market maker for execution.

The market maker profits from the bid-ask spread, and the brokerage receives a small payment for routing the order to them.