How does Robinhood Make Money?
Robinhood makes money primarily through interest on the cash and securities in its customers’ accounts, and secondly through commissions on trades executed by customers.
The company makes money on the interest it earns on the cash and securities in its customers’ accounts. This is called “floating” or “portfolio” interest. For example, if a customer has $1,000 in their account and Robinhood earns 5% annual interest on that money, the company keeps $50. The customer is able to use that $1,000 to invest and make money, but Robinhood gets to keep the interest.
Commissions
The second way Robinhood makes money is through commissions on trades executed by customers. Customers who trade frequently and generate a lot of commissions are the most valuable to the company. Robinhood makes money when its customers trade, and it benefits from customers who trade often and in high volumes.
Robinhood has been criticized for its business model, which some say is designed to encourage customers to trade frequently. Critics say that the company’s reliance on trading commissions puts it at odds with its customers’ best interests and that its business model encourages risky trading behavior.
Robinhood has denied these claims, saying that its business model is designed to align its interests with those of its customers. The company has said that it does not benefit from customers’ losses and that its interests are aligned with its customers because it only makes money when its customers are successful.
