Robinhood’s revenues, in 2021, were primarily driven by options and cryptocurrency trading. In the case of cryptocurrencies, Robinhood’s rebates are a fixed percentage of the notional order value. When it comes to equities, the fees are based on the publicly quoted bid-ask spread for the security being traded.įor options, the fee is on a per contract basis based on the underlying security. When it comes to cryptocurrency trading, those are called “Transaction Rebates.” When it comes to equities and options trading, these fees are known as payment for order flow (“PFOF”). Indeed, transaction-based revenues (which represented over 77% of the company’s revenues in 2021) consist of amounts earned from routing customer orders for options, cryptocurrencies, and equities to market makers.Īs the company highlights, when customers place orders for options, cryptocurrencies, or equities on Robinhood, the platform routes these orders to market makers, receiving a commissions from them for creating market liquidity. Payment for order flow consists of a “kickback” or commission that the broker routing customers to a market maker (in charge of enabling the bid and ask price) will pay a commission to the broker as a sort of market-making fee. In fact, the company makes money on the transactions placed by its users, not by charging a commission, but instead by the so-called payment for order flow (“PFOF”). While Robinhood’s app is free, and it makes it easy for users to invest, it does make money in an asymmetric way. In 2021, for instance, Robinhood made most of its money from the payment for order flow related to options and cryptocurrencies (and within cryptocurrencies primarily with Doge). While Robinhood is free for users, users transacting on Robinhood are routed to market makers, thus earning the company commissions for this trading activity, facilitating liquidity through various markets.
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