Funds held in brokerage accounts can be used to invest in a wide range of financial instruments, including bonds, exchange-traded funds (ETFs), mutual funds, and stocks.īrokerages typically fall into one of two categories: discount and full service.ĭiscount brokerages are able to charge their customers less for services provided by reducing overheads such as physical locations. Customers maintain brokerage accounts with their brokers, through which investments are made by the brokerage.
Pre-Robinhood: Rise of the free trading investment platformīrokerages serve as middlemen that facilitate financial transactions on behalf of their clients. With much of its revenue dependent on attracting large numbers of users, Robinhood had to lower the traditional barriers to entry in investing - and did so by challenging the status quo of the entire brokerage industry. Prior to Robinhood’s launch, getting started with investing could be difficult and time-consuming. It does this by attracting large numbers of users using incentives such as “free” stocks and commission-free trading, retaining those users and encouraging trading activity via behavioral triggers in the app, and earning razor-thin margins on those trades through a process known as payment for order flow (PFOF). Robinhood’s primary means of driving revenue is making very small amounts of money on individual trades at scale.
The company captured $522M in revenue in the first quarter of 2021, quadruple the amount from Q1’20 - though net losses skyrocketed from $53M to $1.4B over the same period.
Robinhood has been the subject of much attention over the past year, amid retail trading mania, a record $70M FINRA fine, continued congressional scrutiny, trading outages, and ramping customer service problems.Īt the same time, its recent S-1 filing also revealed that Robinhood turned a profit of $7.3M in 2020 amid heightened attention and an astronomically growing user base, up from a $107M net loss the previous year. Targeting a $40B valuation ahead of its IPO, Robinhood makes much of its revenue from razor-thin margins on vast volumes of individual trades - a business model that is as lucrative as it is potentially precarious. Today, it boasts more than 18M funded users, up from just 500K in 2015. Since it launched in 2013, Robinhood has become one of the most popular and influential fintech apps in the world. Almost overnight, Robinhood gave millions of first-time investors easy access to the stock markets by making trading simple and, perhaps more importantly, free.