Robinhood Markets is an American financial services company headquartered in Menlo Park, California. Robinhood is a FINRA-regulated broker-dealer, registered with the U.S. Securities and Exchange Commission, and is a member of the Securities Investor Protection Corporation. The company’s revenue comes from three main sources: interest earned on customers’ cash balances, selling order information to high-frequency traders (a practice for which SEC opened a probe into the company in September 2020) and margin lending. As of 2020, Robinhood had 13 million users.
Robinhood products include commission-free stock and ETF trading, commission-free cryptocurrency trading and banking. Robinhood’s original product was commission-free trades of stocks and exchange-traded funds. In February 2016, Robinhood introduced instant deposits, crediting users instantly for deposits up to $1,000; previously, funds took three days to appear via ACH transfer. In September 2016 they launched Robinhood Gold, a premium subscription plan that offers up to $50,000 in instant deposits, margin trading, and more market analytics. As of February 2017, the company had executed over $30 billion in trades. In August 2017, the company began offering free stocks in exchange for referring new users.
On January 25, 2018, Robinhood announced a waitlist for commission-free cryptocurrency trading. By the end of the first day, the waitlist had grown to more than 1,250,000. Robinhood began offering Bitcoin and Ethereum to users in California, Massachusetts, Missouri, and Montana in February 2018. In May 2018, Robinhood expanded its trading platform to Wisconsin and New Mexico.
In June 2018, it was reported that Robinhood was in talks to obtain a United States banking license. In December 2018, Robinhood announced checking and savings accounts, with debit cards issued by Ohio-based Sutton Bank would be available in early 2019. Robinhood claimed the accounts would have a 3% annual interest rate; at the time of the announcement, the highest interest rate on a savings account from a licensed bank was 2.36%. Robinhood initially claimed the accounts would be Securities Investor Protection Corporation SIPC insured, which the SIPC denied. The products were rebranded as “Cash Management” the next day. In January 2019 the waitlist and sign-up page were removed from the app. A new Cash Management feature was announced in October 2019, with FDIC insurance from various partner banks and an annual 2.05% interest rate, though lowered before launching to 1.8% after a federal rate cut. The feature launched in December 2019. However, the current APY is a fraction of what it was originally promised and is 30%.
Independent analysis suggests that payments for order flow generated an estimated $69 million in revenue for Robinhood in 2018, up 227% from the previous year, and accounted for more than 40 % of its overall revenue. In Q2 2020, Robinhood generated approximately $180 million from payments for order flow. Other sources of revenue include a $5 monthly fee for optional membership to Robinhood Gold, which gives the client access to margin loans and investing tools; interest on uninvested cash; lending stocks purchased on margin; and fees on purchases using the company’s debit card.
According to the recent developments, Robinhood has reduced the number of companies with trading restrictions to eight from 50. This development is also posted on their website. The current list includes GameStop Corp., AMC Entertainment Holdings Inc., BlackBerry Ltd., Express Inc., Genius Brands International Inc., Koss Corp., Naked Brand Group Ltd. and Nokia Oyj. Opening new positions in these securities is limited, according to Robinhood’s website, which listed the maximum number of shares and options contracts each user can hold. For those whose current holdings already exceed the limits, their positions will not be sold or closed.
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