In late 2020, Robinhood was fined $65 million by the SEC for misleading customers on how they make their money. They have since been more forthcoming with how they earn revenue and disclosure of fees.
Robinhood offers financial services and a vast array of investing goods and services, including stocks, American depositary receipts, Exchange Traded Funds (ETFs), Initial Public Offerings (IPOs), cryptocurrency, and options.
obinhood generates most of its revenue from accumulating minimal profits from individual trades. It accomplishes this by offering customers enticing features such as “free stocks” and commission-free trading.
Robinhood routes its users’ orders through a market maker who makes the trades and compensates Robinhood for the business at a rate of a fraction of a cent per share. The HOOD Q4 2021 earnings report indicates that transaction-based revenue was Robinhood’s biggest source of income for that quarter.
Robinhood’s premium service, known as Robinhood Gold, offers subscribers access to research reports, market data, larger instant deposits, and margin trading. This generates a separate revenue from subscription fees paid by Robinhood’s premium user base.
Margin Trading is Robinhood’s second-biggest revenue generator. In 2021, margin lending accounted for 12% of Robinhood’s net revenue. Robinhood’s customers can use margin lending to finance stock purchases with borrowed funds.
Cash deposited into the various banks that make up Robinhood’s Cash Management network renders the company fees. It also benefits from using the Robinhood debit card by collecting interchange fees.