The revenue Robinhood gets from a controversial practice of selling customer trades to high frequency trading firms is skyrocketing, according to new research.
The Menlo Park, California-based company has ushered in 6 million users and a $5.6 billion valuation in its five-year existence. Its no-fee model for stock trading has been successful in attracting millennials and put pressure on incumbents like Charles Schwab and TD Ameritrade, which charge $4.95 and $6.95, for trades, respectively.
"The question is, what does that suggest about the underlying execution quality? Are they are going to be biased based on who is paying the most?" Rowady said."There's a feeling that maybe because of mass tech and speed in everything, that there's still some games being played." Robinhood makes money by taking a fraction of a cent per dollar from each trade order and collecting interest on customers' deposits. It also has a paid subscription service called"Robinhood Gold," unveiled in September 2016.
Tenev said like its broker-dealer peers, the start-up"participates in rebate programs which help customers get additional price improvement for their orders by creating competition amongst the exchanges and liquidity providers who fill the orders, often resulting in superior execution quality."