What is Robin Hood?
Robin Hood is an online application which was launched in the year 2014 for the apple smart phone and tablets. It was launched as a platform for the trading in the stock market and it is an online brokerage company which will let you trade from your account without a single penny as a brokerage or commission.
Robin Hood app allowed the investors to buy and sell the stocks as well as the Exchange traded funds (ETF), but the investors were not allowed to perform the activities of short sales or trading of mutual funds, options, or fixed income instruments.
When the Application was placed into the market it was all over the peoples mind as it gave the trading facilities in the nit commission where all the other sites were doing this work for the fees ranging from $1 to $7 per transaction. So in the beginning the customers get attracted to work with the site.
How Robin Hood Make Money?
As the site does not take any brokerage or commission on the transactions, there are some other ways in which they can make money. The main sources of income by these brokers are the interest received from the un-invested cash lying in the account of its customers. Also they pass through any of the regulatory fees that are incurred in the process of trading. These are then rounded off to the nearest penny by the company.
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The other sources of the income are the fees charged by them for the trading placed through the phone on the live stock market, where Robin Hood has been charging the commission of $10 per transaction on these types of transactions. Also they charge the fees up to $35-$50 on the transactions performed in the foreign stock.
Robin Hood claims that they receive a very little amount from the payment on the order fund. It is said that they earn 2.6 cents every time $100 is traded in the market. So this amount can be said to be very low as compared to the other brokerage companies. Almost all the other sites charge the fees and brokerage on the basis of the per share, where Robin Hood doesn’t work on that basis, so you cannot compare it with the other companies easily as it is not possible.
It is seen that the half of the income that Robin Hood generates is from the payment of the order flow and also it is analyzed that Robin Hood’s payment for order flow is as much as ten times than any of the other brokers. So it is not easy for the people to understand the working of Robin Hood because of its lack of transparency in the matter
The other problem with the Robin Hood is that they don’t provide for the price improvement opportunities, which is a bigger advantage for the large investors as well as it will be better that people will be provided with price improvement than giving them advantage of nil brokerage. It the amount of shares is low then it will be advantageous for you to have nil brokerage but for large volume it is not much advantageous. This was FinanceShed’s guide on the Robin Hood App.