How Does Robinhood Make Money

3 min


how does robinhood make money

Everyone is talking about Robinhood app and everyone want to know about Robinhood.  There is thousand of young investor want to invest in cheap and Robinhood is best for them.  In a fact Robinhood double its growth from previous 2 years .  

Robinhood attracts young inventors who are looking for cheap and easy ways to invest from their mobile devices. But the question still exists how does robinhood make money. let’s find out the answer.

What is Robinhood?

Robinhood is an online investment trading app and launched back in 2013. There commission free model and keeps less cost for  young investors to trade in Cash Management Stocks & Funds Options Gold, and even in cryptocurrency without paying any kind of commissions and many are wondering if it deserves all of the hype. Say goodbye to trading commissions And hello to the future of trading. 

robinhood

How the Robinhood App Works

Robinhood is a smartphone app that makes buying and selling stocks very easy. One of the major advented  is that the RobinHood app does not have any fees; real savings as typically, brokers charge between $2-5 for each transaction. 

The Robinhood app has the major advantages of being totally free, very easy to use, and you can automate your buys and sells, so you don’t need to watch your assets 

However, the app is very basic and only allows you to buy or sell stocks. With this app, you cannot short sell, trade mutual funds, options, or use fixed income instruments. There is a reason that this is a no-fees app.

How Robinhood Makes Money

Given its commission-free model and free account opening, how does the trading investment app actually make money from it?

  • Robinhood Gold, a suite of powerful investing tools, which starts at $5 a month
  • Rebates from market makers and trading venues
  • Income generated from cash
  • Stock loan income from counterparties
  • Interchange fees from purchases made with the Cash Management debit card, and fees from program banks

Robinhood UK Ltd, earns service fees from Robinhood Securities, US clearing broker. Robinhood UK makes it possible for UK customers to invest in US stocks by receiving and transmitting orders to Robinhood Securities for execution, clearing, and settlement.

How does Robinhood make money?

Here’s more detail on how their US entities make money:

Interest

According to one of the co-founder of Robinhood, the app makes a large amount of its money from interest. When you invest on margin, you’re borrowing funds from Robinhood Securities. After the first $1,000 of borrowing, you pay interest at an Annualized Percentage Rate of 5%. 

According to the Wall Street Journal article back in 2018, “If a customer buys 100 shares of Apple for $200 each – a $20,000 purchase – Robinhood could get up to $5.20 for routing that order to electronic-trading giant Citadel Securities LLC, according to calculations based on a recent Securities and Exchange Commission filing,”  According to The Journal’s analysis of SEC filings, that’s compared to some 9 cents that Schwab (SCHW) – Get Report would make for the order, and 16 cents that TD Ameritrade would make. 

Premium Accounts (Robinhood Gold)

Robinhood Gold, the company’s premium account gives you access to Morningstar research reports, NASDAQ Level II Market Data, bigger instant deposits, and margin investing. You pay a $5 monthly fee for the service.

Income from Cash

Robinhood Securities generates income on uninvested cash that doesn’t  go to the cash management network of programs banks, primarily by depositing this cash in interest-bearing bank accounts.

Stock Loan Income

Robinhood Securities earns income from lending stocks purchased on margin to counterparties.

Cash Management System 

Sutton Bank issues the Robinhood debit cards and receives an interchange fee that is passed to Robinhood Financial, Their US broker Interchange fees are earned by most debit and credit card issuers and are meant to cover things like transaction processing and fraud loss. The Robinhood debit card is offered in connection with a brokerage account provided through Robinhood Financial LLC, member of SIPC and FINRA.

Robinhood Securities and Robinhood Financial also receive fees from program banks for sweeping funds to them.

To The Point

There are more than 4+ ways to trade on Robinhood and after offering Cryptocurrency as a trading option apparently more boosted users. 

The robinhood app currently offers trading with seven cryptocurrencies, including bitcoin, ethereum, litecoin and Dogecoin. 

Currently, Robinhood cryptocurrency is available in 37 states – reportedly with more on the way to go. 

No Basic fees, no exercise and assignment fees, and no per-contract commission. And, you don’t need a premium account to trade options – the Instant account allows no-commission options trading.  


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