Rebate

What Is a Rebate?

A rebate is money returned after a payment has already been made. The payer pays the full price first, and a portion is returned later, often after meeting a condition such as submitting proof of purchase or completing a transaction. This differs from a discount, which lowers the price at the point of sale.

In investing and trading, the term most often refers to small payments that exchanges and brokers make to market participants. Rebates also appear in consumer and tax settings.

How Exchange Rebates Work

Many stock exchanges use a maker-taker model to attract trading activity. Traders who post limit orders that rest on the order book and add liquidity may receive a small rebate per share. Traders whose orders immediately match against those resting orders pay a slightly higher fee. The exchange's revenue comes from the difference between the two.

Brokers may route customer orders to venues that offer rebates, a practice related to order flow. Whether a broker passes the rebate on to the customer or keeps it can vary, so brokers generally disclose their routing practices.

Rebates in Everyday Finance

Outside of trading, rebates take several forms. Manufacturers sometimes offer mail-in rebates on products, requiring the buyer to apply after purchase. Credit cards may return a percentage of spending as cash back. Governments may refund taxes already paid. Each type has its own rules for eligibility and timing.

Why Rebates Matter to Investors

A rebate reduces the net cost of a transaction, so it can change the total cost of trading compared with the stated brokerage commission. Looking at both the headline fee and any rebate gives a clearer picture of total cost. Fund investors may encounter a similar idea when comparing an expense ratio with any fee reimbursements. In every case, the effect depends on how the rebate is paid and how it is disclosed.