This Is How Much Money Robinhood Makes From Every User On Its Platform
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The objective of any business is to make money. As much money as possible, in fact. And thanks to Robinhood’s impending IPO, we now know how much money Robinhood makes from every, single user on their investing platform.
According to Robinhood’s SEC filing, the platform boasts 18 million accounts that have almost $81 billion in them.
How Does Robinhood Make Money?
The appeal of Robinhood and investment apps like it — outside of its slick user interface — was always that it offered free trades. And, if your account was funded over a certain threshold (roughly $25,000) you could day trade your entire life away. Fee free.
So if every trade is free, then how does Robinhood make money? Although Robinhood doesn’t charge typical brokerage commissions, their revenue is still coming out of investors’ returns. That’s right. Every time you buy or sell a stock or cryptocurrency on their platform they make money. They do it through small discrepancies in the bid-ask spreads.
How Robinhood Makes Money Off Users, Per Money:
When you place a market order on an app like Robinhood, you’re telling a broker to get the best price you can right this second. But buy and sell orders don’t always come into the market at the same moment, so companies called “market makers” essentially sell the convenience of getting your order executed immediately, says James Angel, a finance professor at Georgetown University. Those market makers make a profit off of how much someone is willing to sell a share for, and how much someone else is willing to buy it for — the difference is called the bid-ask spread, and the individual investor is the one who pays it.
To paraphrase a quote about other online platforms… Don’t make the mistake of thinking you‘re Robinhood’s customer, you‘re not – you‘re the product.
How Much Money Robinhood Makes From Its Users?
Per their SEC filing, Robinhood expects to make $137 per user this year. This number is an estimate for 2021 by multiplying their Q1 revenue number by four. It is also worth mentioning that Robinhood only made $83 per user in 2020.
While $137 or even $200 or $500 per year might seem like a lot of money to spend on an investment platform, it is a small price to pay to be able to day trade all day. It was only a few short years ago when paying $7 per trade was commonplace. That said, if you’re using Robinhood for long term investing rather than day trading, they likely makes far less than $137 per year on your account.
All things considered, the fees Robinhood makes from your transactions isn’t a reason to delete the app. However, if you really want a reason to be mad at Robinhood, they have done much worse in 2021 and their past is pretty shady too. That is probably why almost every finance site on the internet has created posts about the best online trading platforms that aren’t Robinhood. Us included.