Though Robinhood does make revenue from interest on deposits and its premium subscriptions, most of its revenue appears to come from "payment for order flow" - a practice whereby exchanges and liquidity providers pay to take the other side of trades.
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Robinhood’s Exceptionally Clever Business Model = Arbitraging Privacy
Intuitively, you probably don’t want your trading orders to be read by someone else (especially if they could act as a counterparty), because if they know you’re a buyer, they can probably inch their offer up slightly and shave a bit of money out of your purchase. On any individual order, you probably won’t get taken for a ride — and maybe you’re even OK with that, since you get to make a trade for free. As long as your slippage cost is below $7 on your total order, maybe you even come out ahead. Even if you don’t particularly enjoy having your order info sent to a high frequency shop, Robinhood’s business model is resilient because when everyone gives up a little, no one is angry or incentivized enough to stop the process.
