Difference between revisions of "Robinhood's Gamification of Investing"
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==== Payment for Order Flow ==== | ==== Payment for Order Flow ==== | ||
| − | Payment for order flow is a system where instead of using a stock exchange to execute customers' trades, a broker will route trades to a market maker in exchange for a fee[https://www.bloomberg.com/quicktake/payment-for-order-flow]. In this case, Robinhood will sell trades to a firm like Citadel, which will purchase the shares that the investor is selling and give Robinhood a fee for doing so, and Citadel will make a profit from re-selling the shares on the open market for a higher price. Robinhood earns less than one cent per share for routing these trades. Still, since users have executed over $150 billion in transactions, payment for order flow revenue adds up and now makes | + | Payment for order flow is a system where instead of using a stock exchange to execute customers' trades, a broker will route trades to a market maker in exchange for a fee[https://www.bloomberg.com/quicktake/payment-for-order-flow]. In this case, Robinhood will sell trades to a firm like Citadel, which will purchase the shares that the investor is selling and give Robinhood a fee for doing so, and Citadel will make a profit from re-selling the shares on the open market for a higher price. Robinhood earns less than one cent per share for routing these trades. Still, since users have executed over $150 billion in transactions, payment for order flow revenue adds up and now makes almost half of Robinhood's revenue[https://www.bloomberg.com/news/articles/2018-10-15/robinhood-gets-almost-half-its-revenue-in-controversial-bargain-with-high-speed-traders]. |
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| + | Robinhood's use of payment for order flow was at the center of regulatory scrutiny during the 2020 meme stock phenomenon, where GameStop and AMC, who seemed to have no intrinsic value, were trading for multiple times above their value weeks before [https://www.wsj.com/articles/amc-shares-slide-premarket-as-meme-stocks-stay-in-focus-11622796997]. | ||
Revision as of 16:48, 26 January 2023
Founded in April 2013 by co-founders Vladimir Tenev and Baiju Bhatt, Robinhood Markets, Inc. is a financial technology company that operates an online brokerage for retail investors, offering commission-free trading through its web- and mobile-based platform. Robinhood allows users to buy and sell stocks, exchange-traded funds (ETFs), options, American depositary receipts (ADRs), and certain cryptocurrencies. As of 2022, Robinhood has over 15 million monthly active users and over 22 million funded accounts.
Revenue Model
Payment for Order Flow
Payment for order flow is a system where instead of using a stock exchange to execute customers' trades, a broker will route trades to a market maker in exchange for a fee[1]. In this case, Robinhood will sell trades to a firm like Citadel, which will purchase the shares that the investor is selling and give Robinhood a fee for doing so, and Citadel will make a profit from re-selling the shares on the open market for a higher price. Robinhood earns less than one cent per share for routing these trades. Still, since users have executed over $150 billion in transactions, payment for order flow revenue adds up and now makes almost half of Robinhood's revenue[2].
Robinhood's use of payment for order flow was at the center of regulatory scrutiny during the 2020 meme stock phenomenon, where GameStop and AMC, who seemed to have no intrinsic value, were trading for multiple times above their value weeks before [3].
