Because when you buy shares on a platform you don't buy them yourself. You don't have an account at the exchange. The brokerage buys them on their account.
So let's calculate the fees. For a given stock, FCKD, the bid offer is $4.50, the lowest offer is $4.60. Transaction costs for this are $0.10 at the brokerage.
Investor A wants to buy a share, B wants to sell one, on the same brokerage. Okay let's see.
Brokerage does nothing (because the amount of shares they hold on the exchange for their clients doesn't change at all). So they don't pay anything for that either. No transaction fees, nothing.
A gets to buy the share, and has to pay the lowest offer + transaction costs for the share, or $4.70.
B wants to sell the share, and he gets to sell if for the highest bid, or $4.50, and in some cases another $0.10 in transaction costs.
So the brokerage "captures the spread", and of course the transaction costs. In this case they made $0.40 for doing ... nothing, no share was sold or bought.
This is the official story. Now in practice, this means that a rather large amount of value is "stored" at the brokerage. It is a long accepted practice in banking that only a percentage of the stored value is kept. So while you might think that as a result of this transaction the bank/brokerage makes $0.40 in profit, but it doesn't. Assuming 10% reserve ratio (which is on the high end, usually either 2 or 4%). It makes (100% - 10%) * 2 * $4.55 + $0.40, and pays that out to it's shareholders/managers/... (twice, because once in cash, one in a share)
Now you might think that's where it stops. Well, not quite. They then go to another bank, and they say "we are holding an asset worth $X on behalf of our customers, can we borrow against that ?", and the next bank say "sure ! if we can do the same". So bank A gets a 2 * $4.55 debt at bank B, and bank B gets a 2 * $4.55 debt at bank A. Since this also counts as reserves, they then only keep 10% of that money actually available, and pay 90% out to their shareholders.
So now the bank has paid out (100% - 10%) * 6 * $4.55 + $0.40 to it's shareholders.
Needless to say, keeping this whole situation stable if the market were to gasp drop even slightly is more than a little tricky. Hence, "too big to fail".
That's why you want to be a bank. This is the reserve currency system we currently work with.
So let's calculate the fees. For a given stock, FCKD, the bid offer is $4.50, the lowest offer is $4.60. Transaction costs for this are $0.10 at the brokerage.
Investor A wants to buy a share, B wants to sell one, on the same brokerage. Okay let's see.
Brokerage does nothing (because the amount of shares they hold on the exchange for their clients doesn't change at all). So they don't pay anything for that either. No transaction fees, nothing.
A gets to buy the share, and has to pay the lowest offer + transaction costs for the share, or $4.70.
B wants to sell the share, and he gets to sell if for the highest bid, or $4.50, and in some cases another $0.10 in transaction costs.
So the brokerage "captures the spread", and of course the transaction costs. In this case they made $0.40 for doing ... nothing, no share was sold or bought.
This is the official story. Now in practice, this means that a rather large amount of value is "stored" at the brokerage. It is a long accepted practice in banking that only a percentage of the stored value is kept. So while you might think that as a result of this transaction the bank/brokerage makes $0.40 in profit, but it doesn't. Assuming 10% reserve ratio (which is on the high end, usually either 2 or 4%). It makes (100% - 10%) * 2 * $4.55 + $0.40, and pays that out to it's shareholders/managers/... (twice, because once in cash, one in a share)
Now you might think that's where it stops. Well, not quite. They then go to another bank, and they say "we are holding an asset worth $X on behalf of our customers, can we borrow against that ?", and the next bank say "sure ! if we can do the same". So bank A gets a 2 * $4.55 debt at bank B, and bank B gets a 2 * $4.55 debt at bank A. Since this also counts as reserves, they then only keep 10% of that money actually available, and pay 90% out to their shareholders.
So now the bank has paid out (100% - 10%) * 6 * $4.55 + $0.40 to it's shareholders.
Needless to say, keeping this whole situation stable if the market were to gasp drop even slightly is more than a little tricky. Hence, "too big to fail".
That's why you want to be a bank. This is the reserve currency system we currently work with.