How Does Robinhood Make Money? The Truth Behind Free Trading [2025 Guide]

Wondering how Robinhood makes money with its "free" trading service? The company generated $2.95 billion in revenue in 2024, showing a 58.2% increase from the previous year. Robinhood achieved a significant milestone by posting its first annual net profit of $1.4 billion since 2020. Let's get into the company's business model and revenue streams that led to this financial achievement.

Payment for Order Flow: Robinhood’s Core Revenue Engine

Robinhood gets much of its money from payment for order flow (PFOF), which makes up about 61% of the company's total revenue. This money-making practice is controversial but serves as the life-blood of Robinhood's business model that offers commission-free trading to millions of users.

What is payment for order flow (PFOF)?

PFOF works as a payment system where brokerages like Robinhood get money from market makers who execute customer orders. Your trade on Robinhood doesn't go straight to the stock exchange. The app sends your order to high-speed trading firms known as market makers.

These market makers include large firms such as:

• Citadel Securities

• Virtu Financial

• Two Sigma Securities

• Wolverine Securities

Market makers pay a small fee to Robinhood to execute your trades, usually fractions of a penny per share. They make money from the spread—the difference between the bid price (what buyers offer) and the ask price (what sellers want)—and give some of this profit to Robinhood.

Market makers value retail investors' "order flow." They can execute trades at better prices than what's listed on exchanges, which is called "price improvement."

How PFOF makes commission-free trading possible

Traditional brokers used to charge $4.95 to $9.95 per trade before Robinhood changed the game. Robinhood didn't invent PFOF—it existed for decades—but made it the foundation of a 

zero-commission business model.

Robinhood makes money indirectly instead of charging users. The company earns from market makers every time you trade. More trades mean more revenue for Robinhood.

The numbers are clear: PFOF and similar deals brought in $1.79 billion in 2024, making up almost two-thirds of Robinhood's total revenue. This money grows especially when markets are volatile and people trade more.

Robinhood can offer free trades and still make good money. The company gets about $2.56 per equity trade through PFOF deals—nowhere near what traditional brokers made from commissions.

Controversies and regulatory scrutiny

PFOF faces most important criticism and regulatory attention. Critics say brokers might route orders to market makers who pay more rather than those offering better execution for customers.

The SEC has raised concerns repeatedly. Gary Gensler, the former SEC Chair, asked whether PFOF really gives retail investors the best deals or just seems "free" while hiding costs in wider spreads or worse prices.

A big controversy happened during the 2021 GameStop trading frenzy. Robinhood stopped trading certain volatile stocks. While the company blamed clearinghouse requirements, users hypothesized about links to its PFOF relationships with market makers.

Regulatory threats to PFOF could hurt Robinhood's business badly. A complete ban would force big changes in its business model. Notwithstanding that, Robinhood says PFOF helps retail investors through commission-free trading and better prices.

The company has tried to fix these issues by sharing detailed quarterly reports about PFOF deals and execution quality. On top of that, it has started to broaden its revenue sources to depend less on PFOF, though it's still the main driver of company profits.

Interest-Based Income: Cash, Margin, and Securities Lending

Robinhood gets much of its revenue through interest-based income streams, beyond payment for order flow. This revenue source has become a vital pillar of their business model. Net interest revenues jumped 25% year-over-year to $296 million in Q4 2024.

Interest on uninvested cash balances

The company's cash sweep program helps them earn money from customers' idle funds. Your deposited money goes to partner banks that pay interest when it sits uninvested in your Robinhood account.

Robinhood Gold subscribers enjoy a 4% annual percentage yield (APY) on their uninvested cash. This rate works well for customers and Robinhood takes its cut from the interest before passing the rest to users.

We've seen a soaring win for the cash sweep program. Total balances shot up 59% year-over-year to $26.1 billion. Gold members hold almost all these balances—$25.5 billion compared to $0.7 billion from non-Gold members.

Your uninvested cash gets FDIC insurance up to $2.5 million after it moves to program banks. Robinhood profits from the difference between what partner banks pay and what customers receive.

How margin lending works and earns revenue

Margin lending brings in another stream of interest-based income. Robinhood lends money to qualified customers so they can buy more securities than their cash would normally allow.

The process is simple. Customers borrow money and pay interest on their loans. To name just one example, borrowing $1,000 on margin at 5% annually means Robinhood earns $50 per year.

Robinhood's margin book has grown by an impressive 126% year-over-year to $7.9 billion in early 2025. This growth shows customers feel more comfortable with margin trading and embrace this higher-risk, higher-reward investment approach.

Higher interest rates have helped boost this revenue stream. Net interest revenues made up 49.8% of the company's total revenue in 2023, climbing 119% to $929 million for the year.

Stock lending to institutional investors

Stock lending rounds out Robinhood's interest-based income sources. This program lets customers earn passive income by lending their owned stocks to other market participants.

Here's how Robinhood's Stock Lending program works:

1. Users can choose to lend their fully paid shares

2. These securities get borrowed for various purposes including short sales

3. Users receive up to 15% of gross revenue from securities lending

Financial institutions borrow these shares for trade settlements, onward lending, or collateral. The program keeps growing more profitable. Securities lending revenue reached $22 million in February 2025, up 69% year-over-year.

Eligible users should understand two key tradeoffs. Loaned shares lose SIPC insurance protection, though Robinhood provides cash collateral as security. Users also give up voting rights temporarily while their shares are on loan.

Interest-based income has become fundamental to Robinhood's business model. It works alongside PFOF to help the company vary its revenue streams.

Robinhood Gold and Premium Services

Robinhood's premium subscription service plays a vital role in their revenue strategy. It provides steady income and gets more users actively involved with the platform. The membership program has become a key part of the company's plan to broaden its revenue beyond transaction-based income.

What is Robinhood Gold?

Robinhood Gold, launched in 2016, is a subscription-based membership program that gives users access to premium financial services and features. Users can get it for $5 monthly or $50 annually (saving 16.7%). The service comes with a 30-day free trial for new subscribers before they need to pay the monthly fee.

The subscription model creates reliable, recurring revenue that balances out the ups and downs of PFOF income. Gold works like "Amazon Prime for your money," bundling several premium financial tools into one subscription.

Features included in the subscription

Gold subscribers get access to a rich set of premium features that improve their investing experience:

• Enhanced yields: Members earn 4% APY on uninvested cash (much higher than standard savings accounts) with FDIC insurance up to $2.5 million across partner banks

• Retirement benefits: Members receive a 3% match on IRA contributions (standard members get 1%), adding $210 when maxing out the 2025 IRA contribution limit of $7,000

• Margin advantages: Users get their first $1,000 of margin interest-free, plus competitive rates (4.7-5.75%) on additional borrowing[162]

• Research tools: Access to professional research from Morningstar covering 1,700+ stocks and Level II market data from Nasdaq

• Higher deposit limits: Users can make instant deposits up to $50,000 daily, much more than standard accounts

• Exclusive credit card: Members get the Robinhood Gold Card with 3% cash back on all purchases and 5% on travel booked through Robinhood's portal

Members who keep at least $1,250 in uninvested cash or contribute $1,667+ yearly to an IRA can offset the subscription cost through higher yields and contribution matches.

Revenue impact of premium users

Gold subscriptions have grown into a key revenue stream, making up about 7% of Robinhood's net revenue. The subscriber base has seen remarkable growth with 2.6 million subscribers in Q4 2024, an 86% increase from the previous year.

These numbers show the product fits the market well and proves successful upselling. More than 10% of Robinhood users now have Gold subscriptions. This creates a stable revenue base that balances out the more volatile transaction-based income.

Gold subscribers bring extra value beyond their subscription fees. Each Gold member keeps an average of $10,000 in cash sweep balances, which creates substantial interest revenue for Robinhood. Gold subscribers had put over $15 billion in FDIC-insured cash sweep accounts by Q4 2023, showing a 200% jump from the previous year.

The Gold Card reached 100,000 cardholders in 2024, with plans to grow in 2025. Every card transaction brings in interchange fees, which helps broaden Robinhood's revenue streams.

Robinhood Gold shows how subscription models can make money from financial services beyond traditional commission structures. The affordable subscription bundles premium features that encourage users to unite more of their financial activities on the platform.

New Revenue Streams: Crypto, Credit Cards, and More

Robinhood continues to expand its money-making approach beyond its basic services. The company's new revenue streams show impressive growth throughout 2024-2025. These profit sources play a key role as Robinhood builds its financial ecosystem.

Robinhood Crypto and trading fees

Cryptocurrency has become a major money maker for Robinhood. The platform's crypto trading volume jumped over 400% year-over-year to $71 billion in Q4 2024. 

The company uses two different fee models for crypto trading, unlike its stock trading service:

• Standard Market Maker Routing: Users trade without commission while Robinhood makes money through volume rebates from market makers

• Smart Exchange Routing: Users pay 0.85% on the dollar value of executed trades (0.83% goes to Robinhood, 0.02% to partner exchanges)

Robinhood added seven new crypto assets to the U.S. market and started offering Ethereum staking in the EU to boost revenue. The company also plans to buy Bitstamp, which stands as the world's longest-running cryptocurrency exchange. This deal should close by mid-2025.

The Gold Card and interchange fees

The Robinhood Gold Card, launched in 2024, quickly became a significant source of income. The card comes with attractive benefits:

• 3% cash back on everything you buy (most cards offer around 2%)

• 5% cash back on travel booked through Robinhood's portal

• No yearly fee or foreign transaction charges

The card has attracted over 100,000 cardholders. Robinhood earns money through interchange fees - charges that merchants pay when customers use their cards. CEO Vlad Tenev explains that revenue comes from "interchange revenue and fees from people who hold balances".

Retirement accounts and future monetization

Retirement accounts stand out as one of Robinhood's fastest-growing areas. The Assets Under Custody (AUC) grew by an impressive 600% year-over-year to $13.1 billion. 

Robinhood attracts users with special perks:

• 1% match on all contributions for regular users

• Higher 3% match for Gold subscribers ($5 monthly)

• Matches work for yearly contributions, IRA transfers, and 401(k) rollovers

Robinhood plans to grow even more by exploring new opportunities like prediction markets. These markets could reach $95 billion by 2032. This push for new ideas shows how Robinhood aims to grow beyond its original trading-focused business model.

Robinhood’s Business Model Risks and Future Outlook

Robinhood has grown impressively, but its business model faces several challenges that could affect its long-term survival. A deeper look at these risks shows what threatens the company's future profits beyond its revenue streams.

D

ependence on PFOF and regulatory threats

PFOF makes up almost two-thirds of Robinhood's total revenue, which creates a major weakness. The SEC keeps raising red flags about PFOF practices. They question if these practices help retail investors or just hide the real costs.

The UK, Canada, and Australia have all but one banned or strictly limited PFOF. If US regulators follow suit, Robinhood would need to find other ways to make money faster or start charging trading fees.

Market volatility and user activity

Trading activity goes up and down in cycles, which puts Robinhood at risk. The company's transaction revenues swing wildly based on market conditions and how much users trade. When markets calm down, people trade less, and PFOF revenue drops.

On top of that, demographic changes could slow future growth. Most Robinhood users are millennials and Gen Z. These users might switch to buy-and-hold strategies as they get older and trade less often, which could cut into transaction revenue.

International expansion and diversification

Robinhood wants to counter these risks by moving into international markets. The company started UK operations in early 2024 and plans to enter more European markets through 2025-2026. But each country has its own rules, especially about PFOF limits.

The company also varies its revenue through banking services, retirement accounts, and wealth management tools. These changes should help turn Robinhood from just a trading app into a detailed financial services ecosystem that doesn't depend so much on transaction fees.

Conclusion

Without doubt, Robinhood has transformed investing with its "free trading" approach and built a diverse revenue engine. PFOF remains its main source of income, but the company has smartly expanded into interest income, premium subscriptions, and new offerings like crypto and credit cards. All the same, regulatory scrutiny and market volatility create most important challenges to its long-term sustainability.

FAQs

Q1. How does Robinhood generate revenue while offering free trading? 

Robinhood primarily makes money through payment for order flow (PFOF), where market makers pay to execute trades. They also earn from interest on uninvested cash, margin lending, and premium subscriptions like Robinhood Gold.

Q2. What is payment for order flow and why is it controversial? 

Payment for order flow is when brokers route customer orders to market makers for execution in exchange for compensation. It's controversial because some argue it may create conflicts of interest, potentially leading to poorer execution prices for customers.

Q3. What benefits does Robinhood Gold offer subscribers? 

Robinhood Gold subscribers receive perks like higher interest on uninvested cash, larger instant deposits, professional research tools, and better rates on margin trading. The subscription costs $5 monthly or $50 annually.

Q4. How has Robinhood diversified its revenue streams beyond stock trading? 

Robinhood has expanded into cryptocurrency trading, retirement accounts, and a rewards credit card. They've also acquired Bitstamp to strengthen their crypto offerings and are exploring new areas like prediction markets.

Q5. What are the main risks to Robinhood's business model? 

Key risks include regulatory threats to payment for order flow, dependence on market volatility for transaction revenue, and potential shifts in user behavior as their core millennial and Gen Z customers age. Robinhood is working to mitigate these through international expansion and service diversification.