Robinhood is a startup that lets users invest in the stock market for no cost at all. No doubt that Robinhood is a revolutionary start-up which has a larger impact in the market; by rewriting the rulebook when it comes to trading and retail brokerage.
Robinhood, with a no-cost model, is providing users with a platform to buy assets like equities, Indices, and cryptocurrency. The rates of these assets are same as that of institutional markets. As per the people, it is like democratizing the investment market.
There are a lot of questions raised regarding the startup – how is able to generate money with no fee charge at all. These doubts led them to uncover some facts regarding the startup Robinhood that the firm has an interesting business model and is selling the order flow of customers to High-Frequency Trading (HFT) firms.
This gave rise to more questions and ultimately led people to conclude that Robinhood is nothing but modern-day redistributors of money.
It first comes into notice in the Robinhood’s SEC rule number 206 disclosures. These reports, which broker-dealers required to publish, disclose the order routing practices of Robinhood.
It has been seen in the reports of Robinhood that all the orders are routed to four different High-Frequency Trading (HFT) firms; Wolverine Securities, Two Sigma Securities, Virtu Financial, and Citadel Securities.
The reports further stated about the financial relationships of Robinhood with these mentioned firms. Robinhood gets to pay for the orders routed to these market makers. Like, for e.g. they paid around less than $0.00026 per dollar of executed trade value by the Citadel Securities.
Instead of making revenue from the traders, the market makes pay Robinhood by receiving users’ order from them. Later, market makers, in their books, will execute the orders at a market rate.
Robinhood, at the starting of this year, decided to jump into the cryptocurrency markets. They have launched themselves in the US states and are launching Ethereum, Bitcoin Cash, Dogecoin, Litecoin, and BTC. The customers are enthusiast about purchasing their crypto coins with no fee at all.