It looks like they're planning to monetize via margin. That would work great if the economy was perpetually in an upswing... but I don't think they would have survived in the great recession.
Not to mention the irony of Robinhood making margin calls.
They are likely also making money by selling the customer's order flow to large institutions/HFT firms who will happily pay significant sums for this. This is something most other retail brokers are also doing and have been doing for a while. The result is that you as the customer are paying indirectly by getting screwed on your fills.
I wonder what the actual implications of "getting screwed on fills" really are.
If I'm buying AAPL as a casual retail consumer, and the market price at the absolute moment is $121.05, and I get "screwed" with a fill of $121.06, is that really a big deal? Especially considering that a few seconds later the true market price could jump in either direction?
As a professional trader who's head is in the moment, sure, that seems bad. But does it REALLY matter for a casual long-term investor? My hunch is no. (I know I couldn't care less if I pay a few pennies more or less - I'm not using Robinhood for day trading, and that's not the point or their pitch.)
Not only this, but I get the feeling that Robinhood is bypassing some corporate social responsibility (and possibly fiduciary duties) if they begin suggesting/ allowing first time investors to start using margin accounts.
This is just fuel on the fire of uneducated first-time investors being lured by "$0 commissions".
from: http://techcrunch.com/2015/05/07/free-stock-trades/ > Tenev says Robinhood is charging a 3.5% fee to trade on margin in a private beta of the feature
It looks like they're planning to monetize via margin. That would work great if the economy was perpetually in an upswing... but I don't think they would have survived in the great recession.
Not to mention the irony of Robinhood making margin calls.