Robinhood's revenue comes from three main sources: payment for order flow, margin lending, and premium subscriptions

Robinhood advertises commission-free stock and options trading, but the company still needs to make money. Instead of charging you per trade, Robinhood sells information about your trades to market makers and other financial firms, lends you money to buy stocks on margin, and charges a monthly fee for premium features. Understanding where Robinhood's revenue comes from helps you see what you're actually paying for when you use the platform.

The company went public in 2023 and reports its earnings quarterly, so the breakdown of how much money comes from each source is public information. Payment for order flow is the largest revenue stream, but the other two sources matter too — especially if you use margin or subscribe to Robinhood Gold.

Key Takeaways

  • Robinhood's largest revenue source is payment for order flow, where the company sells information about your buy and sell orders to market makers before those orders hit public exchanges.
  • When you buy stocks on margin (borrowed money), Robinhood charges you interest on the loan, which is a significant revenue stream separate from order flow payments.
  • Robinhood Gold is a paid subscription tier that charges a monthly fee and gives you access to extended trading hours and margin borrowing at lower rates.
  • The company also makes money from cryptocurrency trading fees, cash management products, and lending out shares you own to short sellers.

Payment for order flow: selling information about your trades

Payment for order flow (PFOF) is the practice of selling data about customer trades to market makers — large firms that buy and sell stocks constantly. When you place an order to buy 100 shares of Apple, Robinhood doesn't send that order directly to the stock exchange. Instead, Robinhood routes it to a market maker (often Citadel Securities or Virtu Financial), and that firm pays Robinhood for the right to fill your order first.

Market makers profit by buying from you at a slightly lower price and selling to you at a slightly higher price — the difference is called the spread. By paying Robinhood for your order, they may provide they get to capture that spread. Robinhood receives a payment per share or per order, which adds up across millions of users. This is how Robinhood can afford to charge zero commissions: the market makers are paying the company instead of you paying the company.

The tradeoff is that your order may not get the absolute best price available on the public market at that exact moment. Regulators and critics argue that PFOF creates a conflict of interest — Robinhood has an incentive to route orders to whoever pays the most, not necessarily to whoever would give you the best price. Robinhood says it monitors execution quality and that PFOF is standard across the industry, which is true for many brokers.

Margin lending: charging interest on borrowed money

Robinhood allows you to borrow money to buy stocks through a feature called margin. If you have $5,000 in your account, Robinhood may let you borrow an additional $5,000 to buy $10,000 worth of stock. You pay interest on that borrowed money, and Robinhood keeps the interest payments. The interest rate varies depending on how much you borrow and whether you have a paid subscription.

Margin lending is a significant revenue source because the interest rates are meaningful. Robinhood's margin rates have ranged from around 2.5% to 12.5% annually, depending on your account size and market conditions. If you borrow $10,000 at 5% interest, you're paying $500 per year to Robinhood just to hold that borrowed money. Multiply that across hundreds of thousands of users, and the revenue adds up quickly.

The risk to you is that if your stocks fall in value, Robinhood can issue a margin call — a demand that you deposit more money or sell stocks to bring your account back into compliance. If you can't meet the margin call, Robinhood will sell your positions automatically, potentially locking in losses. Margin is a powerful tool for experienced traders but a significant financial risk for beginners.

Robinhood Gold: the premium subscription tier

Robinhood Gold is a paid subscription that costs $5 per month (or $55 per year if paid annually). Subscribers get access to extended trading hours (4:00 a.m. to 8:00 p.m. Eastern Time instead of the standard 9:30 a.m. to 4:00 p.m.), lower margin interest rates, and access to research tools and stock analysis. The subscription is optional, but Robinhood makes money from every user who chooses to pay for it.

Extended trading hours are the main draw for most subscribers. During pre-market and after-hours trading, there are fewer traders and wider spreads, so prices can move more dramatically. Some traders believe they can find better opportunities outside standard market hours. Robinhood also reduces your margin interest rate by 1% if you're a Gold subscriber, which saves money if you regularly borrow.

The subscription revenue is smaller than PFOF or margin lending, but it's growing as Robinhood adds more features to the Gold tier. The company has experimented with offering stock fractional shares, cryptocurrency trading, and other perks to Gold subscribers.

Cryptocurrency trading fees and other revenue streams

Robinhood charges a spread on cryptocurrency trades — the difference between the buy price and sell price you see. When you buy Bitcoin on Robinhood, the price you pay is higher than the price you'd receive if you sold it immediately. That difference is Robinhood's revenue. The spread on crypto is typically wider than on stocks, so crypto trading generates meaningful revenue per transaction.

Robinhood also makes money by lending out shares you own to short sellers. When a short seller wants to borrow a stock to sell it (betting the price will fall), Robinhood can lend shares from your account and collect a lending fee. You don't see this happen, and Robinhood keeps the fee. This is standard practice across the brokerage industry.

The company also offers cash management features — essentially a money market account where your uninvested cash earns interest. Robinhood keeps a portion of the interest earned on customer cash balances. As of 2023, Robinhood began offering checking and savings accounts, which generate revenue through interest rate spreads and customer deposits.

How Robinhood's revenue model compares to traditional brokers

Traditional brokers like Fidelity and Charles Schwab also use payment for order flow, margin lending, and premium subscriptions. The difference is that they also charged commissions per trade for decades — Robinhood disrupted the industry by eliminating that fee entirely. When Fidelity and Schwab matched Robinhood's zero-commission model, they had to rely more heavily on PFOF and other revenue sources.

Some brokers, particularly those focused on active traders, still charge commissions on options trades or charge monthly platform fees. Robinhood's model is simpler: no commissions, but PFOF and margin lending are how the company makes money. This model works well for casual investors who trade infrequently, but active traders may find better execution or lower costs elsewhere.

The key difference is transparency. Robinhood discloses that it uses PFOF and how much revenue it generates, but many investors don't understand the implications. You're not paying Robinhood directly, but you may be paying indirectly through slightly wider spreads or less favorable execution prices compared to what you might get at a broker that doesn't use PFOF.

What this means for your costs as a Robinhood user

If you buy and hold stocks long-term and never use margin, Robinhood's revenue model costs you very little. You pay zero commissions, and the impact of PFOF on your execution price is typically small — a few cents per share at most. For a long-term investor, this is a good deal.

If you trade frequently, use margin, or trade options, the costs add up. Margin interest can be expensive, especially if you borrow large amounts. Options trading on Robinhood doesn't charge a commission, but the spreads on options can be wide, which means Robinhood and market makers are capturing more of the profit. Frequent traders may find better pricing at brokers that charge commissions but offer tighter spreads.

Cryptocurrency traders should be aware that Robinhood's crypto spreads are wider than what you'd pay on a dedicated crypto exchange. If you're trading crypto frequently, you may save money using a platform like Kraken or Coinbase Pro, even after accounting for their fees.

Frequently Asked Questions

Does Robinhood make money from my data?

Robinhood makes money from information about your trades through payment for order flow, but not from selling personal data like your name or email. Market makers pay for the right to see your buy and sell orders before they hit public exchanges. This is different from selling your identity or browsing history.

Is Robinhood's zero-commission model sustainable?

Yes. Robinhood's revenue from PFOF, margin lending, and subscriptions is substantial enough to support the business. The company went public and is profitable, which proves the model works. However, if regulators restrict PFOF in the future, Robinhood would need to find other revenue sources or introduce commissions.

Do I pay more because Robinhood uses payment for order flow?

Possibly, but the impact is usually small. Market makers may offer slightly wider spreads to compensate for paying Robinhood, but the difference is typically a few cents per share. For most investors, the zero-commission structure more than makes up for any minor execution disadvantage.

What happens to Robinhood's revenue if I don't trade?

If you hold cash in your account, Robinhood makes money from interest on that cash through their cash management products. If you hold stocks and never sell, Robinhood may make money by lending your shares to short sellers. You generate some revenue for Robinhood even if you never place a trade.

Is margin lending on Robinhood more expensive than other brokers?

Robinhood's margin rates are competitive with other brokers, though they vary based on how much you borrow and market conditions. Robinhood Gold subscribers get a 1% discount on margin rates. If you plan to use margin regularly, compare rates across brokers before deciding.