Business Model
Payment for Order Flow (PFOF) – Core Revenue Source
Robinhood earns money by routing your trades (stocks, options) to market makers like Citadel Securities or Virtu, who execute them and pay Robinhood a small fee per trade.
- Why do market makers pay? They profit from the spread (buy/sell price difference) and want trade volume.
- Controversial? Yes — some argue it may create conflicts of interest, though Robinhood claims it seeks the best execution for users.
2. Margin Lending (Robinhood Gold)
Users who subscribe to Robinhood Gold (paid subscription) can access:
- Margin trading — borrowing to trade; Robinhood charges interest on borrowed funds.
- Premium research and data
- Monthly fee (e.g., $5/month) + margin interest (e.g., 11.25% as of 2024, above $1,000)
3. Stock Loan Income
Robinhood lends out stocks held in user accounts to institutions for short selling and earns fees.
- Users typically do not receive a share of this revenue.
- This is common in the brokerage industry (sometimes called fully paid securities lending).
4. Interest on Cash Balances
Robinhood earns interest on uninvested cash in customer accounts (that’s not swept into a money market fund or interest-bearing sweep account).
- This has become very lucrative in high-rate environments.
5. Interchange Fees (Robinhood Card / Spending Account)
With the Robinhood Cash Card or debit card, Robinhood earns a small fee (around 1-2%) from merchants every time users spend.
- This works like how banks earn from your debit/credit card usage.
6. Cryptocurrency Trading Spreads
Robinhood doesn’t charge direct fees for crypto trades but instead makes money on the spread (the difference between buy/sell prices they quote).
Summary Table:
| Revenue Stream | Description | % of Revenue (approx. as of 2023) |
|---|---|---|
| Payment for Order Flow | Fees from market makers for routing trades | ~30–40% |
| Interest on Cash/Margin | Interest on cash & margin loans | ~30–35% |
| Robinhood Gold | Subscription fees + margin interest | ~15% |
| Stock Lending | Revenue from lending user securities | ~10% |
| Crypto Trading Spread | Markup on crypto trades | ~5–10% |
| Interchange Fees | Fees from debit card usage | <5% |
Invest Alpha 