They don't pay "transaction fees" in the way you think about them. The way it generally works is you pay when you "remove liquidity" from the book and you get p

They don't pay "transaction fees" in the way you think about them. The way it generally works is you pay when you "remove liquidity" from the book and you get paid when you "add liquidity" to the book. What does that mean? Suppose the bid/ask is 20.00/20.10 as in the example given. The order book will show a bunch of people willing to pay 20.00, 19.99, 19.98, etc, and a bunch of people willing to sell for 20.10, 20.11, 20.12, and so on. All of those people have added "liquidity" to the book by making orders which have not yet been placed. The idea is that a huge buyer could come in and try to buy 1 million shares at 20.25, and that order could get immediately executed because of the backlog of non-executed orders. If you bid 20.10 (i.e. offer to buy the stock at 20.10) the seller at the top of the book will have his order executed (with you) and you will have removed a tiny bit of liquidity from the book. On the other hand, if you bid 19.95, your order just gets added to the system, and you have added a bit of liquidity. The exchanges will charge you slightly more for removing liquidity (say .05 / share) than they pay you for adding liquidity (say .04 /share) and so make a spread. However, high frequency strategies can be clever about the way they add and remove orders to the book in order to minimize their net transaction costs, and so they end up being rather low. On the other hand, when a retail investor purchases a stock through Schwab or something, Schwab (or in many cases some other larger bank) is dealing with exchange fees directly, and simply charging their customer a flat commission on top of your trade.