How Does Robinhood Make Money? The Truth Behind Free Trading (2025)

You might be surprised to learn how Robinhood makes money with its commission-free trading. The platform advertises free trading, yet generated a staggering $2.95 billion in revenue in 2024 - a 58.2% increase from the previous year.

Robinhood's first annualized net profit since 2020 reached $1.4 billion after years of losses. The company's clever business model doesn't charge users directly. The Robinhood app gets 80-90% of its total revenue through payment for order flow (PFOF). 

The company also profits from interest on uninvested cash, margin lending, and premium subscriptions. Let's get into Robinhood's revenue model and see how they make money on trades while you retain control of your "free" trading experience across their 25.2 million funded accounts.

How Robinhood Makes Money Without Charging Fees

Robinhood runs on a sophisticated freemium business model that brings in huge revenue without charging the usual commission fees. Traditional brokerages rely on commission-based income, but Robinhood created new revenue channels that keep trading "free" while building a profitable business.

The freemium model explained

The company's approach focuses on giving away simple services while making money through other channels. This strategy worked amazingly well - Robinhood made USD 1.86 billion in total revenue in 2023. They attract many beginner investors by offering commission-free trading, especially those who might shy away from traditional trading fees.

Robinhood's freemium model succeeds through its layered money-making strategy:

1. Basic services are free: Stock, ETF, and options trading has zero commission fees

2. Premium features are paid: Robinhood Gold costs USD 5 monthly and gives you better features

3. Behind-the-scenes monetization: Money comes in through less visible channels

This strategy became a revolutionary force in the brokerage industry. Many established players had to drop their commission fees just to keep up. Robinhood created a fundamental change from direct fees to revenue through less obvious channels.

The model makes getting started really easy. One industry analyst pointed out that these brokers serve casual investors, and "their platforms can be simplified to onboard mainstream and beginner investors in a frictionless and nonintimidating manner".

Why commission-free doesn't mean revenue-free

Robinhood isn't running a charity despite its "zero-commission" trading pitch. The company actually makes more money than traditional commission models through several major revenue streams.

Payment for order flow (PFOF) stands as Robinhood's biggest money maker, bringing in about 72.8% of their total revenue according to reports. Robinhood sends customer orders to market makers who pay them to execute these trades.

Market makers profit from the difference between what customers pay and the actual execution price.

Interest-based revenue plays a huge role too. Net interest revenues jumped 119% to USD 929 million in 2023, making up 49.8% of Robinhood's total revenue.

This money comes from:

• Uninvested cash in customer accounts

• Margin lending (5% interest on margin loans above USD 1,000)

• Securities lending to institutions

Premium subscriptions add another revenue stream. Robinhood Gold fees make up less than 10% of total revenue but provide steady income. The company looks toward subscription models and "draws inspiration from the success of Amazon Prime and Costco".

This multi-channel strategy lets Robinhood offer "free" trading while still making substantial profits. The SEC found these alternative revenue models can create conflicts of interest. They fined Robinhood USD 65 million in 2020 for not giving customers the best prices while chasing higher payments from market makers.

The "zero-commission" model moves costs around instead of eliminating them. Professor Schwarz explains it well: "Most people think that 'zero commission' means trading is free. But that's not the case". Trading costs still exist but hide within bid-ask spreads and payment arrangements rather than showing up as direct fees.

1. Payment for Order Flow (PFOF)

Payment for order flow is Robinhood's main way to make money. This strategy generated more than three-quarters of the company's revenue in the first quarter of 2021. The controversial practice serves as the foundation of Robinhood's ability to offer trades without charging users direct commissions.

What is PFOF and how it works

Payment for order flow happens when retail brokerages send customer orders to market makers instead of exchanges and get paid in return.

Your trade through Robinhood doesn't go straight to a stock exchange. Instead, here's what happens:

1. You submit a buy or sell order through your Robinhood account

2. Robinhood forwards this order to a market maker (like Citadel Securities)

3. The market maker executes the trade at a better price than what public exchanges offer

4. Robinhood gets a small fee from the market maker – usually fractions of a penny per share

Market makers pay for order flow because they profit from the spread between buying and selling prices. Specifically, they might buy a stock at $99.99 and sell it at $100.01. This gives them $0.02 per share while they pay Robinhood about half a cent per share.

Why it's Robinhood's biggest revenue source

PFOF has become more profitable as retail trading volumes have grown. Robinhood relied on PFOF for more than three-quarters of its revenue in 2021's first quarter. The company maintains that PFOF lets them offer commission-free trading.

Rebates that brokerages receive relate to trade size and stock volatility. Market makers pay more for smaller orders because these orders rarely affect market prices. Stocks with wider spreads due to volatility create bigger profits for market makers, so they pay more for these trades.

This revenue model became such a soaring win that many 10-year old brokerages had to drop their commission fees to stay competitive. The entire industry changed because of this.

Controversies and regulatory scrutiny

PFOF remains highly controversial despite its widespread use. The Securities and Exchange Commission (SEC) worries that PFOF pushes brokers to focus on maximum payments rather than best execution. In December 2020, Robinhood paid a $65 million fine because it failed to properly tell customers about its PFOF practices.

The regulatory filing revealed that Robinhood "explicitly offered to accept less price improvement for its customers in exchange for receiving higher payment for order flow". This means customers might have paid more in hidden costs than their commission-free trading saved them.

SEC Chair Gary Gensler believes commission-free trading brokerages might push excessive trading to get more PFOF, which could hurt investors. Canada, the UK, and Australia have banned PFOF completely.

Critics say PFOF creates a basic conflict of interest. Brokers might choose market makers who pay the most instead of those offering customers the best prices. In stark comparison to this, supporters claim retail investors benefit through improved liquidity and better prices than public exchanges offer.

Regulators worldwide continue to inspect whether PFOF helps retail investors or just boosts the profits of brokerages and market makers.

2. Interest-Based Revenue Streams

Interest-based revenue streams are the foundations of how Robinhood makes money, alongside payment for order flow. These interest channels brought in nearly half of Robinhood's total revenue in 2023. The numbers are impressive - USD 929 million, which shows a 119% jump from the previous year.

Interest on uninvested cash

Robinhood's brokerage cash sweep program helps them earn money from customers' idle cash. The company moves unused cash into FDIC-insured program banks that pay interest. Robinhood takes its share before passing the rest to customers.

The company has a tiered interest rate system based on membership:

• Gold subscribers get 4% Annual Percentage Yield (APY) on uninvested cash

• Non-Gold members receive just 1.5% APY

This gap between what program banks pay Robinhood and what customers receive creates a steady revenue stream. Interest adds up daily and customers get paid monthly. Gold members earning 4% APY could make USD 400 yearly on a USD 10,000 balance. Robinhood earns even more from this interest rate difference.

Margin lending and how Robinhood profits

The Robinhood revenue model includes margin lending as another profitable interest source. Customers can borrow up to 50% against their securities' value.

The Robinhood business model benefits from margin in these ways:

1. Interest charges on loans

2. Increased trading volume from leveraged positions

3. Additional assets under management

Robinhood offers competitive interest rates on margin loans like other brokerages. They keep much of the interest as profit. Active traders who want more buying power without selling their positions find this service useful.

Securities lending to institutions

Stock Lending program is Robinhood's third interest-based revenue stream. They borrow customers' securities and lend them to other market participants, often for short sales.

Customers who join this program receive "up to 15% of the gross revenue" from their securities lending. Between June 2022 and April 2024, customers earned over USD 10 million through this program.

Robinhood keeps most of this revenue. The numbers tell an interesting story - in 2023, if everyone eligible had participated, customers could have earned about USD 45 million more than they actually did.

The Robinhood app makes money through lending by:

• Setting higher rates for borrowers than what customers receive

• Targeting "hard-to-borrow" stocks with premium lending fees

• Using their large customer base to access various securities

These three interest-based streams give Robinhood steady income. This complements their more volatile payment for order flow revenue. The result is a diverse robinhood business model that stays profitable even when markets fluctuate.

3. Robinhood Gold: Premium Subscription Model

Robinhood Gold, the premium subscription tier, is one of the most important revenue generators in the Robinhood business model. The service provides improved features to paying users and creates steady income. The subscription base has grown remarkably to 1.7 million subscribers—a 42% increase year over year.

Features included in Robinhood Gold

Members pay $5 monthly or $50 annually after a 30-day free trial and get access to several premium features:

• 4% APY on uninvested brokerage cash (compared to just 1% for non-Gold members)

• Larger instant deposits (up to $50,000 daily, depending on portfolio value)

• Professional research from Morningstar covering approximately 1,700 stocks

• Level II market data from Nasdaq to get advanced trading insights

• First $1,000 of margin borrowed interest-free

• 3% IRA match on eligible contributions (versus 1% for standard accounts)

These features are a great way to get better returns while accessing professional-grade investment tools. The interest rate difference can add up quickly—Gold members with $10,000 in uninvested cash earn $400 annually while non-Gold users earn just $100.

How subscription fees contribute to revenue

The subscription model gives Robinhood a predictable revenue stream that doesn't depend on market volatility or trading volume. Each subscriber generates $60 annually at $5 monthly, which creates substantial recurring revenue. Gold subscriptions could add over $100 million annually to Robinhood's bottom line with 1.7 million subscribers.

Gold membership opens up opportunities to sell other profitable services. Members who use margin beyond the interest-free $1,000 create extra revenue through interest payments at rates between 4.7-5.75%.

Target audience for Gold

The core team at Robinhood designed Gold for three main user segments. Advanced investors value the Level II market data and Morningstar research. Users with large uninvested cash balances benefit from the 4% APY—keeping just $1,250 in uninvested cash covers the annual subscription cost through higher interest.

Retirement-focused investors make up the third key audience. The 3% IRA match helps users who contribute at least $1,667 annually to recover their Gold subscription cost. This feature appeals to younger investors building retirement savings and strengthens the Robinhood revenue model of attracting users with free services before monetizing through premium offerings.

4. Other Revenue Channels: Crypto, Credit Card, and More

Robinhood keeps expanding its income sources beyond core revenue streams through additional financial products and services. These new channels help strengthen the robinhood business model and create most important growth opportunities.

Robinhood Crypto and trading spreads

Cryptocurrency trading has become a key profit center in how Robinhood makes money. Crypto notional volumes shot up over 400% year-over-year to USD 71.00 billion in Q4 2024. Revenue from cryptocurrency reached USD 358.00 million in Q4 2024—an incredible 700% increase.

We traded cryptocurrencies through spreads rather than commissions to generate this revenue. Robinhood profits from the difference between buying and selling prices each time users trade cryptocurrency. The company added seven new crypto assets in the U.S. and launched Ethereum staking in the EU to grow this profitable channel.

The company's acquisition of Bitstamp, the world's longest-running cryptocurrency exchange, aims to boost its institutional and international presence. Market conditions affect crypto revenues—they dropped 30% in Q1 2025—yet they still made up more than 25% of total revenue that quarter.

The Gold Card and interchange fees

Robinhood introduced the Gold Card in 2024, a premium credit card that Gold subscribers can get with 3% cash back on all purchases and 5% on travel bookings. The card comes with no annual fee beyond the standard Gold membership cost.

Revenue from this card comes through:

• Merchant interchange fees from card usage

• Interest charges on carried balances

The Gold Card reached over 100,000 cardholders by Q4 2024, with expansion plans set for 2025. CEO Vlad Tenev called it "an amazing card for people that are building credit", making it both a revenue source and a way to attract new customers.

Stock lending program

Robinhood's stock lending program borrows securities from willing customers and lends them to other market participants. Many competitors ask for USD 25,000-500,000 minimum account values, but Robinhood makes its program available with just a USD 5,000 threshold.

The program helps facilitate short selling strategies while earning revenue from lending fees. Robinhood shares some of this revenue with participating customers, creating another way the Robinhood app makes money while giving value back to users.

Conclusion

Robinhood has revolutionized how people invest by offering commission-free trading while generating substantial revenue. Our analysis shows how this fintech company turned a contradictory business model into a $2.95 billion revenue machine in 2024.

Payment for order flow is the life-blood of Robinhood's money-making strategy and accounts for 80-90% of their total revenue. This practice faces regulatory scrutiny but lets Robinhood keep its zero-commission appeal while making money from routing customer orders to market makers.

Interest-based revenue has become a major part of Robinhood's financial success. The company makes money from uninvested cash, margin lending, and securities lending without charging users any direct trading fees. These interest channels brought in almost half of Robinhood's total revenue in 2023.

Robinhood's premium service, Gold, now has 1.7 million subscribers who pay $5 monthly. This premium tier gives users access to better features and creates steady income that doesn't depend on market conditions.

The company keeps broadening its income sources through cryptocurrency trading, its new Gold Card, and stock lending program. These new channels make Robinhood's business model stronger and open up growth opportunities beyond its main services.

Robinhood turned profitable in 2024 with $1.4 billion in net profit after years of losses. This financial turnaround proves their multi-faceted revenue model works despite regulatory challenges and market swings.

The reality of Robinhood's "free trading" approach is more complex than what most users think. Customers don't pay direct commissions, but costs exist within bid-ask spreads, payment arrangements, and other hidden channels. In spite of that, Robinhood has built a profitable business that appeals to its 25.2 million funded accounts. Most of these are new investors who might avoid traditional trading fees.

FAQs

Q1. How does Robinhood offer free trading while still making money?

Robinhood generates revenue through various channels without charging direct commissions. Their primary income source is payment for order flow (PFOF), where they receive compensation for routing customer orders to market makers. They also earn from interest on uninvested cash, margin lending, and premium subscriptions like Robinhood Gold.

Q2. What are the main revenue streams for Robinhood?

Robinhood's key revenue sources include payment for order flow, interest-based income (from uninvested cash and margin lending), premium subscriptions (Robinhood Gold), cryptocurrency trading, and their stock lending program. They've also introduced a credit card to diversify their income further.

Q3. Is Robinhood truly free for users?

While Robinhood doesn't charge commissions on trades, there are still costs involved. These are often embedded in bid-ask spreads and payment arrangements rather than appearing as direct fees. Users may also incur costs through premium features or interest on margin loans.

Q4. What benefits does Robinhood Gold offer?

Robinhood Gold is a premium subscription service that provides several advantages for $5 monthly. These include higher interest rates on uninvested cash, larger instant deposits, professional research from Morningstar, Level II market data, interest-free margin on the first $1,000 borrowed, and a higher IRA match rate.

Q5. How has Robinhood's business model impacted the brokerage industry? Robinhood's commission-free trading model has significantly disrupted the brokerage industry. It forced many established brokerages to eliminate their own commission fees to remain competitive. This shift has changed how brokerages generate revenue, moving away from direct fees towards alternative income sources like payment for order flow and interest-based revenues.