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When its customers buy and sell stocks and options, Robinhood routes those orders to high-speed traders, which pay the startup brokerage for the right to execute many of those trades. That business, known as payment for order flow, generated about $331m in revenue for Robinhood in the first quarter, according to a securities filing late last week. That is more than triple the $91m Robinhood brought in from payment for order flow in the first quarter of 2020.
Robinhood has other sources of revenue, including a subscription service called Robinhood Gold and fees it collects lending out customer shares to short sellers, but payment for order flow is the largest. The practice has been controversial for years, with critics arguing that it encourages brokerages to maximize their revenue at the expense of customers.
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