The trading app for the “everyday” retail investor has always worked through, with, and for Wall Street brokerages.
For the past few years, Robinhood has spent a great deal of energy marketing itself as born out of the Occupy Wall Street movement and champions a mission to “democratize finance for all.”
The reality, however, is that this rhetoric distracts from the fact that it’s actually helping preserve the status quo—namely by turning its customers (but more so their orders) into products. The secret to Robinhood’s success (and profitability) is simple: payment for order flow. To ensure trades are commission free, trades are sold to “market makers” or large firms such as Citadel—Citadel Securities is Robinhood’s largest customer, and affiliate Citadel LLC tried to bail out Melvin Capital after its Gamestop shorts cost it billions. Market makers execute those trades (sometimes at an inferior rate) and can use their privileged position to place themselves in the middle and make a profit. Crucially, in this arrangement, more trades and more volatility mean there’s more for firms like Citadel to work with.
Source: Robinhood’s Customers Are Hedge Funds Like Citadel. Its Users Are the Product.
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