How Robinhood Makes Money

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Robinhood makes money mainly in two ways: it gets paid for routing customer orders to market makers and other trading venues, and it earns interest on customer and corporate cash, margin loans and securities lending. Trading is commission-free for customers. The revenue comes from what happens around each trade and from the money sitting in accounts. A smaller third stream includes Robinhood Gold subscription fees, proxy revenue and account transfer fees.

The balance between these streams changes with the economy. For most of Robinhood’s history, payment for order flow was its signature revenue source. In 2023, higher interest rates made net interest the largest category for the first time.

What Robinhood Is

Robinhood was founded in 2013 by Vlad Tenev and Baiju Bhatt and is headquartered in Menlo Park, California. Its mobile app launched publicly in 2015 with a then-unusual pitch: no commissions on stock trades. Large discount brokers later moved to zero-commission stock trading as well, but Robinhood’s model was built around it from the start.

The company added options trading, crypto trading (launched in 2018) and Robinhood Gold, its paid subscription tier. Trading surged during 2020 and early 2021, and so did scrutiny. In December 2020, Robinhood agreed to pay $65 million to settle SEC charges that it had misled customers about its payment for order flow and the execution quality of their orders. In January 2021, it drew wide criticism for temporarily restricting purchases of GameStop and other heavily traded stocks during the meme-stock squeeze. The company went public on the Nasdaq in July 2021 under the ticker HOOD.

Robinhood is a US company, and its core brokerage serves US customers. It has expanded beyond the US with brokerage service in the UK and crypto trading in the European Union. The Bitstamp deal was announced to grow that international footprint.

Robinhood went public with a dual-class share structure. The founders hold high-vote Class B shares, which gives them more voting power than their economic stake alone would suggest.

How Robinhood’s Business Model Works

Robinhood reports as a single business segment, so it does not publish separate profit figures for brokerage, crypto or cards. It does split revenue into three categories, and each one depends on a different driver.

Transaction-Based Revenue: Payment for Order Flow

When a Robinhood customer places an order for a stock, option or cryptocurrency, Robinhood does not usually execute it on an exchange itself. It routes the order to a market maker, a firm that stands ready to buy and sell and profits from the gap between the bid and ask prices. The market maker pays Robinhood for sending that business. This arrangement is called payment for order flow (PFOF).

The payment per order is small, typically a fraction of a cent per share. Robinhood handles enormous order volume, so those fractions add up. That is the answer to how Robinhood makes money without trading fees: the customer pays no commission, and the market maker pays the broker instead.

Under a simple example, suppose a market maker paid a hypothetical $0.002 per share. An order for 500 shares would earn the broker $1. Across millions of orders a day, the total becomes meaningful. Options orders are generally more valuable to market makers than stock orders, and options are a large part of Robinhood’s transaction revenue.

PFOF is legal in the US but controversial. Critics argue it creates a conflict of interest, because a broker could favor the market maker that pays most rather than the one that gives customers the best price. US brokers still have a duty of best execution, and SEC Rule 606 requires them to publish reports on where they route orders and what they receive for doing so. Regulators outside the US have taken a harder line: the UK’s Financial Conduct Authority does not allow PFOF, and the EU has moved to ban it.

In 2023, Robinhood’s transaction-based revenue fell 3.56% to $785 million. Crypto and equities revenue declined, while options and other assets rose. This category is the most sensitive to how actively customers trade. Busy markets lift it, and quiet markets shrink it.

Net Interest Revenue

Net interest revenue is interest earned minus interest paid. Robinhood earns it from several sources:

• Margin lending: customers who borrow to buy securities pay interest on the loan.
• Securities lending: Robinhood lends out shares held in customer accounts (for example, to short sellers) and earns fees and interest on those loans.
• Cash: interest on uninvested customer cash, including cash swept to partner banks, and on Robinhood’s own corporate cash and investments.

On the expense side, Robinhood pays interest on its revolving credit facilities and pays customers interest on certain cash balances.

Net interest revenue rose 119% to $929 million in 2023, making up 49.8% of total revenue. Most of the growth came from interest on corporate cash and investments, driven by the Federal Reserve’s rate increases. This stream depends heavily on the rate environment. When rates fall, the yield on cash falls with them, and this category can shrink even if customer balances grow.

Other Revenue

The remaining revenue mainly comes from:

• Robinhood Gold membership fees. Gold is a paid subscription that adds features such as margin access, research tools and higher interest on uninvested cash.
• Proxy revenue. Companies pay brokers to distribute shareholder materials, such as proxy statements and annual reports, to the investors who own their shares.
• ACATS fees. These are charged when a customer transfers an account out of Robinhood to another broker through the Automated Customer Account Transfer Service.

Other revenue rose 25.8% to $151 million in 2023, about 8.1% of the total. Most of that increase came from higher proxy revenue.

What the 2023 Financials Show

Adding the three categories gives total 2023 revenue of about $1.87 billion, with net revenue growing 37.3% from the prior year. Robinhood still reported a net loss of $541 million. That was a smaller loss than the prior year’s loss of more than $1 billion. Share-based compensation expense of $871 million weighed heavily on the 2023 result.

Two customer metrics show how the user base was moving:

• Funded customers, meaning accounts that have received an initial deposit or transfer, rose 2% to 23.4 million.
• Monthly active users fell 4% to 10.9 million.

Taken together, these figures show that interest income did most of the work in 2023. The trading-driven side of the business was flat to down, and the number of people using the app each month slipped even as funded accounts edged up.

What Robinhood Customers Actually Pay

“Commission-free” does not mean there are no charges at all. Here is what customers pay for the services that generate Robinhood’s revenue.

Trading commissions. Robinhood charges no commission to trade US-listed and OTC stocks, ETFs and options.

Regulatory and clearing fees. Sells of securities can carry the FINRA Trading Activity Fee, and options trades can carry the Options Regulatory Fee and OCC clearing fees. These are set by regulators and clearing organizations and passed through to the customer. They are not Robinhood revenue in the way PFOF is.

Withdrawals. Standard bank transfers out of Robinhood are free. Instant withdrawals to a debit card or bank account can cost up to 1.75% of the amount.

Margin interest. Borrowers pay interest on margin loans, with rates tiered by the size of the balance borrowed. A 2023-era fee schedule showed rates from 5.7% to 6.75%. Margin rates move with benchmark interest rates, so the current schedule is the figure that applies.

Account transfers out. Moving an account to another broker through ACATS carries a fee, which feeds the “other revenue” line.

Crypto. Robinhood does not charge a separate commission on crypto trades. It earns on crypto order flow as part of transaction-based revenue.

The pattern is the same one seen in other “free” consumer finance apps, such as how Credit Karma makes money. The headline service costs nothing, and revenue comes from third parties, interest and optional paid features.

Robinhood’s Competitors

Robinhood competes with discount brokers, banks, asset managers, crypto exchanges and payment and technology platforms. Its major competitors include:

• Charles Schwab for brokerage
• E*TRADE, owned by Morgan Stanley, for brokerage
• Coinbase for crypto trading
• Block (formerly Square), whose Cash App offers stock and bitcoin investing
• River Financial for bitcoin

Larger brokers earn more from asset management, advisory services and banking than Robinhood does. Robinhood’s revenue is more tied to trading activity and interest rates, which makes its results swing more with market sentiment.

Newer Revenue Bets: The Gold Card and Bitstamp

In March 2024, Robinhood announced the Gold Card, a Visa Signature credit card available to Robinhood Gold members. As announced, it offers 3% cash back on all purchases and 5% on travel, with no annual fee and no foreign transaction fees. A credit card adds interchange fees and interest income, and tying it to Gold membership supports subscription revenue as well.

In June 2024, Robinhood announced a deal to buy Bitstamp, a long-running cryptocurrency exchange, for about $200 million. At announcement, it expected the deal to close in the first half of 2025, subject to regulatory approvals. Owning an exchange gives Robinhood an institutional crypto business and a licensed base outside the US, which reduces how much it depends on US retail trading.

Both moves follow the same logic. They spread revenue beyond order flow and interest into cards, subscriptions and exchange operations.

The Bottom Line

Robinhood earns very little directly from the trades customers see. Its money comes from market makers paying for order flow, from interest on cash, margin and securities lending, and from subscriptions, proxy services and transfer fees. Which stream leads depends on conditions. Active markets favor transaction revenue, and high interest rates favor net interest revenue, as 2023 showed. Customers trade without commissions, but they still pay regulatory fees, margin interest, instant withdrawal fees and outbound transfer fees. The Gold Card and the Bitstamp acquisition are Robinhood’s attempts to make its income less dependent on any single driver.