Robinhood generated $2.95 billion in revenue in 2024 through payment for order flow. This represents a 58.2% increase from the previous year. The financial app that transformed investing with commission-free trading posted $1.4 billion in net profit – its first profitable year since 2020.
The company markets itself as a free trading platform, but its business model depends on behind-the-scenes revenue streams. Payment for order flow makes up 72.8% of Robinhood’s total revenue. The market looked very different before Robinhood’s disruption. Investors paid $5 to $10 per trade and needed $500 minimum to open an account. This “free” service has hidden costs. Robinhood charges the highest rate for equity trades at 17 cents per hundred shares, while Charles Schwab makes only 11 cents.
The company’s revenue sources have expanded significantly. Net interest revenues jumped 119% to $929 million in 2023, which accounts for almost half of their total revenue. Robinhood now manages $193 billion in assets across 25.2 million funded accounts as of 2024 – a 116% increase from the previous year. The platform continues to attract younger investors with an average user age of 31.
How does Robinhood make money without charging fees?
Robinhood’s trailblazing “free trading” model has transformed how brokerages operate. This financial app uses several clever revenue-generating strategies that help it maintain zero-commission trading and build a profitable business.
The freemium model explained
Robinhood uses a classic freemium business model. It offers simple services at no cost and charges for premium features. This strategy has become the foundation of their growth and revenue generation. The company attracts users to the platform with commission-free trading, which appeals especially to younger investors who aren’t familiar with traditional brokerage fees.
Robinhood Gold, a $5 monthly subscription, provides premium features to users. This upgraded membership includes professional research reports from Morningstar, NASDAQ Level II Market Data, larger instant deposits, and better rates for margin investing. While Gold subscription fees contribute less than 10% of total revenue, they create steady recurring income.
Why commission-free doesn’t mean free
“Free trading” really means there’s no visible cost to users. Behind this apparent generosity, Robinhood makes money from user activity in less obvious ways.
Payment for order flow (PFOF) creates the biggest hidden cost. Robinhood sends user orders to market makers who execute trades and pay Robinhood for the business. Users might see slightly higher buy prices and lower sell prices because of this practice.
Your “zero commission” trade might still include regulatory fees, exchange fees, and clearing fees. The company can also recover costs by increasing bid/ask spreads – the gap between what you pay to buy and what you get when selling.
Overview of Robinhood’s revenue model
Robinhood has built multiple revenue streams that create a diverse approach to making money:
- Payment for Order Flow (PFOF) – PFOF brings in the largest share of Robinhood’s revenue at 72.8% of their total income. Market makers pay for order flow when users trade stocks, options, and ETFs. Robinhood’s payment-for-order-flow sales reached $682 million in 2020, jumping 514% from the previous year.
- Interest Income – The company earns interest from uninvested cash in user accounts and margin lending. Net interest revenues grew by 119% to $929 million in 2023, making up 49.8% of total revenue. Higher interest rates on corporate cash and investments drove this growth.
- Premium Subscriptions – Beyond Robinhood Gold, premium features generate additional revenue. “Other revenues” (including Gold subscriptions) grew 54% year-over-year to $54 million in Q1 2025.
- Cryptocurrency Trading – Crypto has become a key growth driver. Crypto-related revenue doubled to $252 million in Q1 2025 compared to the previous year.
Robinhood has created a sophisticated revenue model that offers commission-free trading while making substantial profit through less visible channels. This approach has made stock trading more accessible without hurting profitability.
1. Payment for Order Flow (PFOF)
Payment for order flow (PFOF) serves as the life-blood of how Robinhood makes money. The company gets about 72.8% of its total revenue from this source. Market makers pay brokers like Robinhood to send customer trade orders their way – a practice that many find controversial.
How PFOF works
PFOF uses a straightforward yet sophisticated system. Robinhood doesn’t send your trade directly to a stock exchange. Instead, they route it to market makers – specialized firms that aid buying and selling of securities. These market makers complete your trade at the National Best Bid and Offer (NBBO) price or better. NBBO shows the smallest quoted spread between bid and ask prices you can find on any exchange.
Let’s look at an example. Say you want to buy shares of a company. The bid price stands at $101.02 and the ask price at $101.08. The market maker might complete your order at $101.07 – a price that beats the market. Market makers earn from the small price difference between what they pay and charge. They share a portion of this profit with Robinhood in exchange for your orders.
Why market makers pay Robinhood
Market makers have good reasons to pay for Robinhood’s order flow. Retail order flow gives them steady trading volume, which helps manage inventory and balance risk. Retail traders also tend to use simple trading strategies. This makes their orders more predictable and less likely to hurt market makers’ positions.
Everyone seems to win in this setup. Market makers get reliable order flow. Robinhood earns revenue without charging commissions. Customers might even get better prices than what NBBO shows. Citadel Securities, Susquehanna International Group, and Wolverine Capital Partners lead the pack of major market makers working with Robinhood. Virtu Financial and Two Sigma round out the group. The top three handle more than 70% of all execution volume.
Controversies and regulatory scrutiny
PFOF has drawn its share of criticism and regulatory attention. The biggest problem centers on potential conflicts of interest. Brokers might choose routes that maximize their payment rather than get the best deal for customers. This issue grabbed headlines during the 2021 “meme stock” craze with GameStop and AMC Entertainment.
The SEC stepped up its oversight as a result. They fined Robinhood $65 million in December 2020. The company failed to tell customers about PFOF practices that led to higher trading costs. The SEC found that Robinhood “explicitly offered to accept less price improvement for its customers in exchange for receiving higher” PFOF.
Regulators also worry about commission-free trading. It might push people to trade too much, which helps Robinhood earn more PFOF money whether or not it benefits investors. SEC Chair Gary Gensler points out that “payment for order flow can raise real issues around conflicts of interest”.
Canada, the UK, and Australia have banned PFOF. The practice remains legal in the US as long as no other exchange offers a better price on the National Market System. The European Union plans to end PFOF by 2026.
Robinhood claims PFOF makes its commission-free trading model possible. CEO Vlad Tenev has tried to minimize PFOF’s importance. He says it’s “a small chunk of Robinhood’s revenue”. This statement doesn’t match the company’s regulatory filings, which warn that PFOF changes could seriously affect their business results.
2. Interest Income from Cash and Margin
Interest revenue plays a huge role in how Robinhood makes money and has become a key part of the company’s revenue model. The company’s net interest revenues hit $296 million in Q4 2024, showing a 25% jump from the previous year.
Interest on uninvested cash
Users often leave cash sitting in their Robinhood accounts before investing it. The company puts this eligible cash to work through its Cash Sweep program by moving it to FDIC-insured program banks. These banks pay interest on the deposits while Robinhood takes its cut in fees.
Robinhood Gold members pay $5 monthly and get a sweet 4% Annual Percentage Yield (APY) on their uninvested cash as of December 2024. The platform calculates interest daily based on end-of-day balances and pays it monthly. A user keeping $10,000 in uninvested cash could pocket around $400 yearly if the balance stays the same.
The Cash Sweep program has taken off lately. It jumped 48% from last year, reaching a record $28.20 billion by Q1 2025. This program now brings in serious money for the company.
Earnings from margin loans
Margin lending has become another big money-maker for Robinhood. Users can borrow money to buy more securities or handle short-term cash needs. The company’s Margin Book more than doubled with a 115% year-over-year growth to $8.80 billion by Q1 2025.
The system works like traditional margin accounts. Robinhood charges interest on borrowed money. Take a trader who borrows $20,000 for stocks – at a 7% yearly interest rate, Robinhood would earn $1,400 in annual interest.
This revenue stream has grown into a crucial part of Robinhood’s business model. Net interest revenues made up nearly half (49.8%) of the company’s total revenue in 2023.
Impact of interest rate changes
Federal interest rates shape Robinhood’s interest income directly. Rates stayed high through 2024, even after a 50 basis point cut in September 2024. This created perfect conditions for Robinhood’s interest-earning business.
Rising interest rates benefit Robinhood in several ways. The company earns more from uninvested cash and margin lending, which can boost profit margins. Lower rates might shrink this revenue unless the company grows its assets under management.
The relationship works both ways. Higher rates make borrowing costlier for margin users and might reduce demand. Lower rates usually lead to more margin borrowing. These macroeconomic conditions make interest income both a strength and weakness in Robinhood’s business model.
3. Robinhood Gold Subscription
Robinhood Gold, the premium subscription service, is another major revenue stream in how Robinhood makes money. The service brings in millions through monthly fees. The subscription-based membership has grown faster, reaching 3.2 million subscribers by Q1 2025—a remarkable 90% year-over-year increase.
What is Robinhood Gold?
Robinhood Gold serves as the company’s premium tier for serious investors who want advanced tools and privileges beyond the simple free account. The service was launched as part of the company’s robinhood business model to broaden revenue sources. Gold now makes up much of Robinhood’s income portfolio. Active traders and those with larger portfolios find value in its improved features, which create a second tier of service that brings steady recurring revenue.
Features and pricing
Robinhood Gold costs $5 monthly or $50 annually, which saves users $10 per year. New subscribers can try it free for 30 days.
The service has these valuable benefits:
- 4% APY interest on uninvested brokerage cash (compared to just 0.0025% for non-Gold members)
- Professional research reports from Morningstar
- NASDAQ Level II market data to learn about trading
- Zero interest on the first $1,000 of margin borrowing
- Larger instant deposits for immediate trading access
- 3% match on annual IRA contributions (worth $210 when maxing out 2025 contributions)
- Zero management fees on every dollar over $100,000
How it contributes to revenue
“Other revenues”—which we get mostly from Gold subscriptions—grew 54% year-over-year to $54 million in Q1 2025. This growth shows both rising subscriber numbers and higher retention rates.
The robinhood revenue model gets more from Gold beyond direct subscription fees. Users keep higher account balances to maximize APY benefits. Features like margin trading bring additional interest income. The service builds customer loyalty, which reduces churn and increases lifetime value.
Gold delivers substantial revenue at its modest price point. With 3.2 million subscribers paying at least $50 annually, the service generates over $160 million yearly in subscription fees alone. Robinhood improves Gold’s value proposition continuously. They recently added banking features and AI-powered advisory services called Robinhood Strategies.
4. Other Revenue Streams
Robinhood has built several growing income streams beyond its main revenue channels that broaden how Robinhood makes money. These extra sources of revenue play an increasingly vital role in the company’s overall business model.
Crypto trading and spreads
Cryptocurrency has become a major profit generator in the robinhood revenue model. Crypto-related revenue hit $252 million in Q1 2025, which doubled year-over-year and made up over 43% of Robinhood’s total transaction revenue. The company achieved this growth even as crypto trading volumes dropped 35% from the previous quarter to $46 billion.
Robinhood has aggressively expanded its cryptocurrency offerings to strengthen this revenue stream. The company added five new coins in the U.S. market, bringing the total to 26, and nine more in Europe, reaching 48 coins during Q1 2025. The company’s biggest move was its plan to buy Bitstamp, one of the world’s oldest cryptocurrency exchanges. This acquisition would add nearly 50 licenses and registrations globally once the deal closes in mid-2025.
Stock lending program
The stock lending program shows another way the robinhood app makes money without charging fees. Like in programs from competitors such as Fidelity and Vanguard, users can earn extra income by lending their existing shares to other market participants—mainly for short selling.
Borrowers, usually institutions, must provide collateral worth at least 102% of the loan value. Users get a share of the lending fees while Robinhood keeps the rest.
Users should think over these factors before participating:
- SIPC insurance coverage stops temporarily for securities on loan
- Borrowers get the voting rights for borrowed shares
- Dividend payments become “cash-in-lieu” which might affect taxes differently
Credit card and interchange fees
The launch of Robinhood’s Gold Card in March 2024 opens up new revenue opportunities through interchange fees. Their Visa Signature card gives users 3% cash back on all categories and 5% on travel, without annual or foreign transaction fees.
Card issuers earn interchange fees from every transaction—merchants pay a percentage (usually 1-3%) to the issuing bank. The Gold Card attracted over 100,000 cardholders by Q4 2024, and Robinhood plans to expand throughout 2025.
This strategy follows a common fintech approach where companies broaden their services beyond core offerings. Such moves help create stable revenue streams, which prove valuable during changing interest rate environments.
Conclusion
Robinhood earns money through payment for order flow, interest income, premium subscriptions, and other services while keeping its promise of commission-free trading.
The platform markets itself as “free” but pulls in billions through revenue streams that aren’t immediately obvious to users. Their biggest money maker is payment for order flow, which brings in 72.8% of revenue even as regulators scrutinize this practice and raise questions about potential conflicts of interest.
The company’s interest income has become a major source of revenue that now makes up almost half of their total earnings in 2023. This strategy to broaden their income sources helped Robinhood reach $1.4 billion in net profit for 2024 – their first profitable year since 2020. Their premium service, Robinhood Gold, adds another strong revenue stream with 3.2 million subscribers generating over $160 million each year in subscription fees.
Robinhood’s path forward isn’t without obstacles. Many countries have banned payment for order flow practices, and the EU plans to eliminate it by 2026. The company’s heavy reliance on interest income could also become problematic if interest rates change, which might affect much of their revenue.
Yet Robinhood keeps proving it can adapt and evolve. The company heads over to new territories like cryptocurrency trading, banking services, and credit cards to expand beyond its original model. These changes, combined with growing assets under management ($193 billion by late 2024), might help Robinhood handle future regulatory shifts.
The reality behind Robinhood’s “free trading” shows a basic truth about modern financial services – if something looks free, you’re probably paying in ways you don’t notice right away. Robinhood helped democratize investing by removing obvious barriers like commissions and high minimum deposits.
Smart investors should know how their trading activity generates money for the platform. This knowledge helps them review whether this innovative fintech company offers real value or just moves costs to less visible parts of the trading experience.
FAQs
Q1. How does Robinhood generate revenue without charging trading fees?
Robinhood primarily makes money through payment for order flow (PFOF), where they route customer orders to market makers who pay for this order flow. They also earn interest on uninvested cash in user accounts, charge interest on margin loans, and offer premium subscriptions like Robinhood Gold.
Q2. What is Robinhood Gold and how does it contribute to the company’s income?
Robinhood Gold is a premium subscription service that costs $5 monthly. It offers features like higher interest rates on uninvested cash, professional research reports, and larger instant deposits. This service generates recurring revenue and encourages users to maintain higher account balances.
Q3. How does Robinhood’s cryptocurrency trading contribute to its revenue?
Robinhood earns money from cryptocurrency trading through spreads on transactions. In Q1 2025, crypto-related revenue reached $252 million, accounting for over 43% of Robinhood’s total transaction revenue. The company has been expanding its cryptocurrency offerings to strengthen this revenue stream.
Q4. What are the potential risks or downsides of using Robinhood?
Some potential downsides include limited investment options compared to traditional brokers, concerns about the impact of payment for order flow on trade execution quality, and past instances of platform outages during high-volatility periods. Additionally, the user-friendly interface might encourage impulsive trading among inexperienced investors.
Q5. How might regulatory changes affect Robinhood’s business model?
Regulatory changes, particularly those targeting payment for order flow, could significantly impact Robinhood’s revenue. PFOF is already banned in some countries, and the EU plans to phase it out by 2026. Such changes could force Robinhood to alter its business model or find alternative revenue sources to maintain its commission-free trading offer.