Robinhood Business Model – How does Robinhood make money

What is the first thought that comes to your head when someone talks about Robinhood? Commission-free trading, right? It is one of the reasons why this platform has become so popular in the first place. Stock trading is an excellent way to earn income. But most people are highly afraid of it too. Wondering why? It is a risky investment, right?

One wrong move can cost you all your money. So many people are highly careful around stock trading, if possible they completely avoid. Also not to forget about the brokerage. They have to pay a good sum as brokerage too. Since they don’t understand much about it, people don’t get into it.

However, with Robinhood entering the market, the situation has changed for the better. Although this Robinhood may not steal money from the rich and give to the poor. This platform is truly helping people save good money. On this mobile stock trading app, people can buy or sell stocks without paying commission. This itself will help them in saving good money. And this is the reason why most young people are taking an interest. It will not be an exaggeration to say that this platform has helped many young people in taking investment seriously and start investing without fearing about brokerage. 

Robinhood Business Model 

Robinhood was founded back in 2013. It is the brainchild of Vladimir Tenev and Baiju Bhatt. This company has gone a long way since its inception. Although many businesses have come forward with the idea of commission-free trading. However, Robinhood has successfully become successful. Around 4 million people are using this platform to trade. Amazing, right? Robinhood has completed transactions of around $150 billion. It has also saved around $1 billion in transaction fees. 

If you want to understand the business model of Robinhood then you must first understand how it works. As you already know Robinhood is a mobile stock trading app that has been around for a long time. All the users need is their app. From signing up to buying stocks they can do everything on the app. So to complete a sign-up process you must provide all your details.

Once you finish the signup process you don’t have to worry about anything as you can buy or sell the stocks with your finger swipe. It is not an exaggeration to say that Robinhood has made trading easy and understandable for users. One of the main reasons why many people don’t try stock trading is because it’s risky and it is quite hard to understand. 

This brings us to, How does Robinhood make money? It is one of the questions that many people have. As you see people don’t understand how can this company make profits why offering commission-free trading for its users. For all trading platforms, the major source of revenue comes from the brokerage. However, the core idea behind Robinhood success is that they don’t take brokerage from their users. Which allows them to earn good money from trading. 

You also must be curious how this business makes money owing to their business strategies. What are you waiting for? Then let’s jump directly into the topic without any delay.

How does Robinhood make money?

The business model of Robinhood is based on the freemium model. Although the users are not paying anything to this platform they are still making good money. So let’s see how it makes money. 

Interest

This is one of the ways Robinhood makes money. Since you know that this platform is offering the users an option to trade without commission. Most people wonder what this platform gets out of it. Valid question, right? They make money from your unused cash deposits. Yup, you heard it right. This platform earns money in the form of interest from the unused money from your account. As you see it charges 2% of interest on the money that is sitting in your account per year. Although this may not seem much you can see that they can make good money as they have 4 million accounts. Not only this they also charge an APR of 5% when users borrow more than $50,000. 

Premium Subscriptions 

As you already know that the business model of this platform is freemium. Which means it offers its users both free and premium. Yup, you heard it right Robinhood offers a premium plan (Gold subscription plan). This subscription plan offers many benefits to its users. Some of the benefits include extended trading hours. 

Yup, it provides traders with extra trading hours. The premium users can start 30 minutes before the market starts and they can continue trading for 2 hours even when the market closes. Users don’t have to wait for three days to make their deposit; they can deposit their trades immediately. Not only this it also provides users with more buying power with margin trading. 

If you’re confused about buying on margin. Let us explain. It means that the user can borrow money to buy more stock. Simply put, the users can borrow money to increase their potential earnings from a stock. But however, the users must remember that in case your judgement goes wrong you will have to lose all your amount and also pay back the borrowed money. It is definitely risky.

The price of Gold subscription plan $5 a month. If you want to upgrade to this plan you can do it within your account. 

Additional features

There are two methods in which this business makes money. Since you have understood how this company makes money, why not check out its additional features of its business model. In 2017 they launched the desktop version of Robinhood. So now traders can trade using both desktop and mobile apps.

Now, apart from stocks, the trades can also buy Cryptoassets on this platform. And the best part is that this is also commission-free. So the trades can invest without worrying about commissions. If you’re interested in options trading. You can also get that in the free plan. Cool, right.

Wrapping up 

As you have made it to the end, you must have learned a little bit more about Robinhood. This mobile trading app has become famous among millennials. More and more people are using this platform as they can buy or sell the stocks with ease and most importantly without any commission-free. As there are not many platforms that offer commission-free trading Robinhood has gained popularity. In the initial days, people were really sceptical about this platform as they don’t know whether it is safe or not.

But over time this platform has proven to be the best platform for stock trading and has grown its user base. Do you want to know more about such business models? Yes, then check out other business model articles in Zeen to understand more about all major businesses and how they earn money. 

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