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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.
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.
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