The zero-commission trading apps may have brought a new generation of traders to the stock market, but they have hidden costs that may add up to billions of dollars a year for retail investors, according to a new study.

The authors of a new study say the mounting costs associated with free brokerages are the result of a different mechanism, contrary to what many market experts have said.

It isn't that market makers who pay for order flow are making retail trades harder to execute, according to a study published this month.

The quality of pricing and price improvement between the brokerages themselves varies, meaning that investors can expect to see a different return depending on the trading app they use.

The authors set up 85,000 trades to be executed at the same time. The result was a wide range of pricing for identical trades compared to the National Best Bid Offer Price.

The authors noted that when a broker directly trades to market makers, it allows the broker to offer a small price improvement to its own users.

The range of price improvement is a major source of losses for retail investors.

Billions of dollars in losses are claimed to be caused by the differences in pricing.

While we were aware that such trading would not be free, we were surprised by the range of execution

The regulators have been critical of the hidden fees retail traders pay for using commission-free brokerages for a long time, but their attention has mostly been on PFC Last year, the Securities and Exchange Commission fined Robinhood $65 million for directing customer trades to market makers who didn't offer the best price, and SEC Chair Gary Gensler proposed new rules for greater transparency among brokers that use PFOF.

The focus on payment for order flow may be incorrect.

Researchers found no explanation for the observed execution differences. The practice only made up 3.4% of the differences in retail broker prices.

We use market centers to try to understand the drivers of variation in price execution. The reason for the price differences is that different brokers have different prices for the same trade.