How does Robinhood stock broker make money?
Robinhood seems interesting. Some say it's a gimmicky site with a nice UI not an investing or trading platform. From investopedia: 1. For now, the app stays afloat for mainly two reasons. First, the business itself is extremely lean: no physical locations, a small   staff, no massive public relations campaigns and only one operating   system platform to maintain. Robinhood also generates interest off of   unused cash deposits from user accounts according to the Federal Funds   rate. 2. Second, venture capitalists such as Index Ventures, Ribbit Capital,   Google Ventures, Andreessen Horowitz, Social Leverage,and “many   others” have invested more than $16 million in the app. 3. According to Barron’s, Robinhood plans to implement margin trading in   2015, eventually charging 3.5% interest for the service. E*Trade   charges 8.44% for accounts under $25,000. Phone assisted trading will   also be available at $10 per trade in the future. 4. Originally, Robinhood planned to make money off of order flows – a   common tactic used by discount brokerages in the 199﻿0s to generate   revenue. According to the company's FAQ, Robinhood backpedaled on the   idea because it executes orders through a clearing partner and, as a   result, receives little to no payment for order flow. The company is   willing to return to its original plan in the future if it receives   order flows directly or begins to generate a lot of revenue from them. "Yes, there is a lot they are leaving out, and I would be extremely skeptical of them because of the ""reasons"" they give for being able to charge $0 commissions. Their reasons are that they don't have physical locations and high overhead costs, the reality is that they are burning venture capital on exchange fees until they actually start charging everyone they suckered into opening accounts. They also get paid by exchanges when users provide liquidity. These are called trade rebates in the maker-taker model. They will start offering margin accounts and charging interest. They are [likely] selling trade data to high frequency trading firms that then fill your stock trades at worse prices (Robinhood users are notorious for complaining about the fills). They may well be able to keep commissions low, as that has been a race to the bottom for a long time. But if they were doing their users any actual favors, then they would be also paying users the rebates that exchanges pay them for liquidity. Robinhood isn't doing anything unique as all brokers do what I mentioned along with charging commissions, and it is actually amazing their sales pitch ""$0 commissions because we are just a mobile app lol"" was enough for their customers. They are just being disingenuous." "Disclosure: I don't have an iPhone, so I don't use RobinHood.  That being said, I have a less ""they're-out-to-get-ya"" view of what they're doing. As a small business owner (2 businesses), employees cost the most.  If you can create a solid business with few (or no) employees and let robots run it, you will drastically reduce your costs.  Joe Polish said it similarly with sales letters, something along the lines of they never complain about a headache, need to take a year off to discover themself, or just need a personal day.  Robots are the same; they do not have human limits.  Most simple trading can be done and maintained by well written code and AI, there's very little need for humans to do anything other than build it.  Think about the efficiency of bitcoin versus all the central banks combined; how many people are employed by central banks? Robinhood states that they are using technology in these ways to minimize costs and they're using a system that doesn't need physical branches (this doesn't mean they will never have them, just that they don't need them).  Robinhood does not indicate that they allow everything to happen for free; only stock trading.  I worked for a large trading firm once and observed that stock trading wasn't the bulk of where they made their money anyway; trading options, futures, index funds, etc are where the big money was and Robinhood says nothing about those being free.  Like the CQM mentioned too, they'll be charging for margin as well. In a way, the individual stock trader is dead; many people - including this forum - prefer index funds, so more than likely, Robinhood will strike up a deal with an index fund company or create their own (this is just easy, passive income with an expense ratio).  In this category, the markets are their playground, but they do need to attract enough people to their platform, thus free stock trading is a good way to do it. As for selling your information for advertising, that is always a possibility, but they have quite a few other options that would be good for most investors (index funds, affiliating with financial fund companies, etc) where they can start before ever needing to dip their toe in selling information.  This isn't to say they won't do it, but that there are few other options they have. The major concern I have for Robinhood is ongoing security.  Just building it and letting it run kind of assumes that there won't be major compromises in the future and as AI evolves, superior AI might be able to crush older AI." Charging very high prices for additional standard services: See Commission & Fees: https://brokerage-static.s3.amazonaws.com/assets/robinhood/legal/RHF%20Retail%20Commisions%20and%20Fees%20Schedule.pdf Link is down in the footer, to the left...
I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do.  There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier.  Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail.  So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague.  Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares).  Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other  wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose.  US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead.  Some links for further reference:  Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful.  Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds.  I hope this helps! There's not much more, but it's all condensed in a handful of blogs. It depends on the broker, each one's rules may vary. Your broker should be able to answer this question for how they handle such a situation. The broker I used would execute and immediately sell the stock if the option was 25 cents in the money at expiration. If they simply executed and news broke over the weekend (option expiration is always on Friday), the client could wake up Monday to a bad margin call, or worse. I feel like the author doesn't have a clear message. On the one hand he is saying that Robinhood users should be long-term passive investors, the he turns around and criticizes it for not completing trades fast enough and having too much slippage.  I think that we need to be very specific about our goals. If the goal is to make as much money as possible, sure, Robinhood is a poor tool. However, the vast majority of people are only at the point that they need to save more. If then our goal is to get more people to save more then it is a great tool. It lowers barriors and makes it fun. More importantly, the limits of Robinhood are obvious to anyone who starts to take the next step and increase their gains. Consider trying a broker that offers free trading. Robinhood is one such broker. The way I would use it is, every trade done by a broker has a client side and a street side.  The client side is for their brokerage account, and the street side is whoever they traded with Say, John Doe calls me at Charles Schwab and wants to buy 100 IBM.  I look at the market and decide that the best execution is on Arca.  I trade on Arca for the client.  Then, I book a client side trade into his account, and a street side trade against Arca.  If I myself was a dealer in IBM and executed against my inventory, the street side would basically be internal, booking a trade against my account. Well they do have incentive, the more volume you trade the more they make in commission. The shop is mostly daytrading oriented but you can do whatever you want. From what I gather, alot of their revenue comes in the form of training programs (although they offer one for free when you sign up, mostly in equities) which are completely optional. Also, they're willing to sponsor me for my 7, which is good. I mean this is a super risky career move but you roll the dice when you enter prop trading, in more ways than one. When my orders fill, I'll often see a 1000 shares go through over 4-6 transactions, with a few cents difference high to low, but totaling the transaction cost, it adds to one commission (say $10 for my broker). Are you sure a series of partial fills would result in as many as 20 commissions? Any investment company or online brokerage makes investing in their products easy. The hard part is choosing which fund(s) will earn you 12% and up.