How Robinhood Securities makes money
Our mission is to democratise finance for all. Earning revenue allows us to offer our customers a range of financial products and services at a low cost, including commission-free trading.
Robinhood Securities, who offers services to both US and UK customers, primarily earns income from the following sources:
Stock trades are commission-free, however other fees may apply.
We earn income from lending securities to counterparties.
Robinhood Securities earns fees from banks that participate in its brokerage sweep program when it sweeps uninvested cash in brokerage accounts to those banks. Robinhood Securities also generates income on uninvested brokerage cash that isn't swept to such banks, primarily by depositing this cash in interest-bearing bank accounts.
When customers buy or sell stocks through their brokerage accounts, their orders are sent to one or more market makers or exchanges for execution. To compete with exchanges, market makers offer rebates to brokerages and typically offer better prices than exchanges.
Robinhood Securities, our US clearing broker, developed a routing system to incentivise the market makers Robinhood has relationships with to compete for order flow based on the amount of price improvement obtained. This algorithm, known as the smart order router, prioritises sending customer orders to a market maker that’s likely to give them the best execution, based on historical performance. The smart order router may also direct a small portion of orders to one or more exchanges, taking into account the quality of past executions. This preserves our ability to maintain trading in the event that one or more market makers are unable to execute orders. Under applicable exchange fee schedules, we generally pay the exchange when we take liquidity and be paid when we provide liquidity.
While Robinhood receives these rebates from market makers for US customer orders, no such rebates are received for UK customer orders.
Robinhood U.K. Ltd (Robinhood UK) is authorised and regulated by the Financial Conduct Authority (FRN: 823590). Robinhood UK onboards UK customers and has the lead customer relationship with UK customers in relation to their use of the Robinhood UK app and website. Robinhood UK introduces UK customers to Robinhood Securities, LLC for order routing, execution, clearing, settlement, arranging custody services and margin lending to eligible UK customers with margin accounts. Robinhood Securities, LLC is regulated in the US by the SEC and FINRA. Robinhood UK and Robinhood Securities, LLC are subsidiaries of Robinhood Markets, Inc.