Robinhood is a brokerage firm that buys and sells stocks, options, and cryptocurrencies on your behalf

Yes, Robinhood is a brokerage — a company licensed to execute trades in financial markets. When you place an order through Robinhood's app, Robinhood connects you to exchanges where stocks trade, takes your money, buys the security you want, and holds it in an account registered to you. You own the shares or cryptocurrencies; Robinhood is the intermediary and custodian.

The key thing to understand is that Robinhood makes money from you in specific ways, and those ways shape what you see in the app. Robinhood does not charge per-trade commissions — that part is genuinely free. But Robinhood earns revenue from payment for order flow (selling information about your trades to larger firms), from margin interest if you borrow to trade, and from Robinhood Gold, a paid subscription tier. Knowing this matters because it affects what the app shows you and what it encourages you to do.

Key Takeaways

  • Robinhood is a licensed brokerage regulated by the SEC and FINRA, meaning your cash and securities are protected under standard brokerage rules.
  • You own the stocks and cryptocurrencies you buy through Robinhood; Robinhood holds them in custody but cannot use them without your permission.
  • Robinhood makes money from payment for order flow and margin interest, not from commissions, which is why trades appear free.
  • Your account is insured up to $500,000 through SIPC (Securities Investor Protection Corporation) if Robinhood fails, though this does not cover losses from bad trades.

How Robinhood operates as a brokerage

When you open a Robinhood account, you are opening a brokerage account — a legal account type that holds securities in your name. Robinhood is the broker, meaning it is licensed to execute trades on exchanges on your behalf. You tell the app to buy 10 shares of Apple; Robinhood routes that order to an exchange, the trade executes, and those shares are recorded in your account.

Robinhood does not own your shares. It acts as a custodian — it holds them safely and keeps the records straight. This is different from a bank holding your money in a savings account. With a brokerage account, you own the underlying asset, and the brokerage is responsible for keeping track of it and executing your instructions to buy or sell.

Robinhood is regulated by the Securities and Exchange Commission (SEC) and FINRA (Financial Industry Regulatory Authority), the same bodies that oversee other brokerages like Fidelity or Charles Schwab. This means Robinhood must follow rules about how it handles your money, how it executes trades, and how it discloses conflicts of interest.

What protection you have as a Robinhood customer

Your cash and securities held at Robinhood are protected under SIPC (Securities Investor Protection Corporation) coverage up to $500,000 per account. This means if Robinhood goes bankrupt or fails, SIPC will return your cash and securities to you. This protection does not cover losses from trades you made — if you bought a stock and it fell, SIPC does not reimburse you. It covers only the scenario where the brokerage itself fails and your assets go missing.

Robinhood also keeps customer cash in separate accounts at banks, not in Robinhood's own operating accounts. This is standard practice and required by regulation. Your cash is not at risk if Robinhood has financial trouble.

You should also know that Robinhood has faced regulatory action and fines for violations — most notably in 2020 and 2021 for outages, misleading disclosures about payment for order flow, and options approval practices. These actions do not mean your money is unsafe, but they do mean you should read Robinhood's disclosures carefully and understand that the company has a track record of regulatory issues.

How Robinhood makes money without charging commissions

Robinhood's business model relies on three main revenue streams. The largest is payment for order flow — Robinhood sells information about your trades to market makers and other firms who use that data to make their own trades. When you buy a stock, Robinhood knows the direction and size of your order before it hits the exchange, and it sells that information. This is legal but creates a conflict of interest: Robinhood has an incentive to encourage you to trade more, because more trades mean more order flow to sell.

The second revenue stream is margin interest. If you use Robinhood's margin feature to borrow money to buy securities, you pay interest on that borrowed amount. The third is Robinhood Gold, a paid subscription that gives you access to margin, extended-hours trading, and research tools.

Understanding this matters because it shapes what you see in the app. Robinhood's interface is designed to make trading easy and appealing — fractional shares, no commissions, push notifications about stocks. These features are real and useful, but they also encourage the behavior that makes Robinhood money.

The difference between Robinhood and a bank

A bank holds your money and pays you interest. A brokerage like Robinhood holds securities (stocks, options, cryptocurrencies) and executes trades. The two are regulated differently and offer different protections. Bank deposits are insured by the FDIC up to $250,000; brokerage securities are insured by SIPC up to $500,000.

If you keep cash in your Robinhood account without investing it, that cash is held at partner banks and is FDIC-insured. But the moment you buy a stock, you have moved into brokerage territory, and SIPC protection applies instead.

What you should know about Robinhood's regulatory history

Robinhood is a legitimate, regulated brokerage, but it has had compliance problems. In 2020, the app went down during a market spike, preventing customers from trading. In 2021, the SEC fined Robinhood $70 million for misleading customers about how much money it made from payment for order flow. FINRA has also fined Robinhood multiple times for options approval practices and other violations.

These actions do not mean Robinhood will steal your money or that your account is unsafe. They mean Robinhood has been caught breaking rules and has had to pay penalties. You should factor this into your decision about whether to use Robinhood, but you should not assume it is a scam or that your securities are at risk.

How Robinhood compares to other brokerages

Robinhood is one of many brokerages. Fidelity, Charles Schwab, E*TRADE, and Interactive Brokers are also brokerages. They all operate under the same SEC and FINRA rules. The main differences are in features, fees, and user experience. Robinhood's app is simpler and more mobile-focused than most competitors. Fidelity and Schwab offer more research tools and customer service. E*TRADE sits in the middle.

All of these brokerages make money from payment for order flow to some degree, though some are more transparent about it than others. All of them hold your securities in custody and are subject to SIPC protection. The choice between them comes down to which features matter to you and which company you trust to execute your trades fairly.

Frequently Asked Questions

Does Robinhood own my stocks?

No. You own the stocks; Robinhood holds them in custody on your behalf. Robinhood cannot sell your shares or use them without your permission. If Robinhood fails, SIPC returns your securities to you.

Is my money safe at Robinhood?

Cash held at Robinhood is FDIC-insured through partner banks. Securities are SIPC-insured up to $500,000. This protects you if Robinhood fails. It does not protect you from losses on trades you make.

Why does Robinhood not charge commissions?

Robinhood makes money from payment for order flow — selling information about your trades to other firms. It also earns margin interest and subscription fees. This business model works because the volume of trades is high enough to generate revenue without per-trade commissions.

Can Robinhood go out of business and take my money?

Robinhood is a regulated brokerage with SIPC insurance. If it fails, SIPC will return your cash and securities up to $500,000 per account. This has never happened to a major U.S. brokerage in modern times, but the insurance exists for that scenario.

Is Robinhood a scam?

Robinhood is not a scam, but it is a for-profit company with conflicts of interest. It has been fined by regulators for misleading practices and outages. You should read its disclosures and understand how it makes money before you use it, but it is a legitimate, licensed brokerage.