Robinhood is one of the most popular investing apps, but how does it make money on crypto? In this post, we’ll explore how the app generates revenue and how it makes money on cryptocurrency transactions.
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What is Robinhood?
Robinhood is a commission-free stock trading app that lets users trade stocks, options, ETFs, and cryptocurrency. That might sound too good to be true, but it’s actually not. Robinhood makes money by collecting interest on the cash and securities in user accounts, as well as charging fees for things like margin trades and account transfers.
Now that we know how Robinhood makes its money, let’s take a look at how the company makes money on crypto.
Robinhood makes money on crypto in two ways:
1. By collecting interest on the cash and cryptocurrencies in user accounts
2. By selling order flow
The first way is relatively straightforward. When you buy Bitcoin or Ethereum on Robinhood, your coins are stored in a wallet on the Robinhood servers. Like any other bank, Robinhood collects interest on the cash and cryptocurrencies that are deposited in user accounts. The average APY on cash deposits is 0.30%, while the average APY on cryptocurrencies is 4.08%.
The second way Robinhood makes money on crypto is by selling order flow. Order flow is the process of routing trades to different market makers in exchange for a fee. When you place a buy or sell order on Robinhood, your order isn’t necessarily sent to the stock exchange where the security is traded. Instead, your order is sent to one of Robinhood’s market makers, who then executes the trade on their own behalf. In return for providing this service, the market maker pays Robinhood a fee. This fee is typically around 0.15% of the trade value, but can be higher or lower depending on the security traded and the size of the order.
How does Robinhood make money on crypto?
Robinhood makes money on crypto by charging fees for trades and transactions. They also charge a fee for withdrawals and deposits. Furthermore, Robinhood makes money on crypto by selling data to third party firms.
Robinhood’s Business Model
Robinhood makes money on crypto by earning interest on the cryptocurrencies that are bought and sold on their platform. They also earn a commission on the trades that are made.
Robinhood’s Revenue Streams
Robinhood makes money from a few different sources. First, they charge for premium services like margin trading and extended hours trading. They also collect interest on the cash and securities in user accounts. Finally, they sell order flow to market makers.
1. Premium services: Robinhood charges for premium services like margin trading and extended hours trading.
2. Interest on cash and securities: Robinhood collects interest on the cash and securities in user accounts.
3. Order flow: Robinhood sells order flow to market makers.
The Bottom Line
Essentially, Robinhood makes money the same way that a traditional broker does: They charge you for each transaction.
Specifically, Robinhood charges you $0 per trade. That’s right — zero dollars. In order to do this, they make their money in two ways:
– Gold memberships: For a $5 monthly fee, Robinhood Gold members get access to premium features, like after-hours trading and larger instant deposits.
– Interest on uninvested cash: Any cash that you have sitting in your account (i.e. not invested in stocks, crypto, etc.) is lent out to other Robinhood users. Robinhood makes money off the interest that they earn on this uninvested cash.