How Does Robinhood Make Money?

Not currently available in Canada, Robinhood is a free-trading app that lets you trade stocks, options, exchange-traded funds and cryptocurrency. The startup puts it’s goal this way: It’s to make finances available to all.

Robinhood bills itself as a commission-free trading app, but the term “commission-free” can be misleading. There is a fee schedule associated with Robinhood. Allow us to explain.

How Robinhood makes money

Robinhood makes money through various means, including customers fees, like these:

• Transfers: There are fees associated with transfering securities from one trading account to another, domestic wire transfer ($25), international wire transfers ($50) and domestic overnight check delivery ($20).

• Services: Service fees often relate to delivery charges for mailing paper statements ($5), paper confirmations ($2), domestic overnight mail ($20), and international overnight mail ($50).

• Premium services: Like a lot of apps, you get a certain number of services for free. Other services cost money.

Let’s take a look at some of the key areas and programs that Robinhood relies on for revenue:

Robinhood Gold

Robinhood Gold is a premium subscription service that offers in-depth research reports from Morningstar on about 1,700 stocks, bigger instant deposits, access to margin and Level II market data (meaning you’ll get real-time monitoring of bids and asks directly from Nasdaq). The associated fee is $5 for up to 30 days and five percent annual interest based on how much margin you use. Robinhood Gold offers customers a suite of powerful investing tools, offers more buying power and larger instant deposits.

Rebates from market makers and trading venues

Anytime you buy or sell ETFs, stocks or options, your orders get sent to market makers. These market makers try to compete with exchanges by offering rebates to brokerages, such as Robinhood. Robinhood Securities maintains relationships with a number of market makers. (Note: These rebates aren’t considered when your brokerage orders are routed.)

Income from cash

According to Robinhood, the company generates income on uninvested cash that isn’t put in the cash management network of program banks. This cash is deposited in interest-bearing bank accounts.

Robinhood U.K. Ltd. also earns service fees from Robinhood Securities, its U.S. clearing broker. Robinhood U.K. makes it possible for U.K. customers to invest in U.S. stocks by receiving and transmitting orders to Robinhood Securities for execution, clearing and settlement.

Stock loan income

Direct from Robinhood’s website: Robinhood Securities earns income from lending stocks purchased on margin to counterparties.

Interchange fees from purchases made with the Cash Management Debit Card

Sutton Bank issues the Robinhood Mastercard® debit card and gets an interchange fee passed to Robinhood Financial — that’s why there’s a “Sutton Bank” logo printed on a Robinhood Cash Management Debit Card.

Customers can use the Robinhood debit card virtually anywhere that Mastercard® is accepted around the world.

You can also get a virtual debit card to use online and through Apple Pay, Google Pay and Samsung Pay. Here are the spending limits associated with the Cash Management debit card:

Robinhood makes money through interchange fees. These are fees earned by most debit and credit card issuers and are meant to cover things like transaction processing and fraud loss.

How to make money yourself through Robinhood

It’s best to remember that no matter what you do to invest or which broker you choose to invest with, you’re always likely to pay something. Robinhood happens to be one of the most affordable apps on the market, but there are fees associated with using its services.

Note that Robinhood’s fees and pricing structure were correct at the time of writing but are subject to change. If you have any questions on how Robinhood makes money then you could reach out to their support team.