Robinhood Financial: Difference between revisions
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|Name=Robinhood Financial, LLC|Type=Subsidiary|Founded=2013|Industry=Financial Services|Official Website=http://robinhood.com/|Logo=Robinhood (company) logo.svg}} | |Name=Robinhood Financial, LLC|Type=Subsidiary|Founded=2013|Industry=Financial Services|Official Website=http://robinhood.com/|Logo=Robinhood (company) logo.svg}} | ||
'''[[wikipedia:Robinhood_Markets|Robinhood Financial, LLC]],''' is a wholly-owned subsidiary of [[wikipedia:Robinhood_Markets|Robinhood Markets, Inc]]. The US app based brokerage company offers commission free stock and ETF trading ( exchange-traded funds ). Founded in 2013 by two former Stanford University room mates, the app was launched in 2015. Their mission is to democratize finance for all. | '''[[wikipedia:Robinhood_Markets|Robinhood Financial, LLC]],''' is a wholly-owned subsidiary of [[wikipedia:Robinhood_Markets|Robinhood Markets, Inc]]. The US app based brokerage company offers commission free stock and ETF trading ( exchange-traded funds ). Founded in 2013 by two former Stanford University room mates, the app was launched in 2015. Their mission is to democratize finance for all. | ||
==Consumer impact summary== | |||
===Mission statement=== | ===Mission statement=== | ||
| Line 17: | Line 18: | ||
Operates on a commission free trading model for individual investors. Generating revenue through: | Operates on a commission free trading model for individual investors. Generating revenue through: | ||
*Payment for order flow (PFOF): | *Payment for order flow (PFOF): Selling customer trades to high frequency trading firms earning rebates for each trade. This accounts for a significant percentage of its revenue.<ref name=":5">{{Cite web |last=Goldfine |first=Jael |date=January 28, 2021 |title=Robinhood’s business model and backlash, explained |url=https://www.businessofbusiness.com/articles/robinhoods-business-model-and-backlash-explained/ |website=businessofbusiness.com}}</ref> | ||
*Robinhood Gold: | *Robinhood Gold: Subscription service offering margin trading and advanced feature for five dollars a month.<ref name=":5" /> | ||
*Interest on cash and securities lending: | *Interest on cash and securities lending: Earning from idle cash in user accounts and lending shares to short sellers.<ref>{{Cite web |last=Cabral |first=Sarah |last2=LaCombe |first2=Amy |date=December 1, 2021 |title=Robinhood, Reddit, and GameStop: What Happened and What Should Happen Next? |url=https://www.scu.edu/ethics/focus-areas/business-ethics/resources/robinhood-reddit-and-gamestop-what-happened-and-what-should-happen-next/ |website=scu.edu}}</ref> | ||
Critics argue that PFOF creates a conflict of interest, as they may prioritize routing orders to the highest paying firms rather than ensuring the best execution for customers. | Critics argue that PFOF creates a conflict of interest, as they may prioritize routing orders to the highest paying firms rather than ensuring the best execution for customers. | ||
===Negative impacts=== | |||
===Negative impacts | |||
====Misleading Practices and Lack of Transparency==== | ====Misleading Practices and Lack of Transparency==== | ||
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=====Restricting Consumer Choice===== | =====Restricting Consumer Choice===== | ||
*During the 2021 | *During the 2021 they abruptly halted trading in meme stocks, citing clearinghouse deposit requirements. This left individual investors unable to capitalize on market movements while institutional traders faced fewer restrictions. Critics argued this violated consumer rights by favoring systemic stability over fair access.<ref name=":3">{{Cite web |last=Orcutt |first=Johnathan |date=February 25, 2021 |title=The Legal Impact: Robinhood |url=https://law.unh.edu/blog/2021/02/legal-impact-robinhood |website=unh.edu}}</ref><ref name=":4">{{Cite web |last=Cabral |first=Sarah |last2=LaCombe |first2=Amy |date=December 1, 2021 |title=Robinhood, Reddit, and GameStop: What Happened and What Should Happen Next? |url=https://www.scu.edu/ethics/focus-areas/business-ethics/resources/robinhood-reddit-and-gamestop-what-happened-and-what-should-happen-next/ |website=scu.edu}}</ref><ref>{{Cite web |last=Goodman |first=Lawrence |last2=Lofchie |first2=Steven |last3=Lumsdaine |first3=Robin |date=February 23, 2021 |title=Robinhood and GameStop: Essential Issues and Next Steps for Regulators and Investors |url=https://corpgov.law.harvard.edu/2021/02/23/robinhood-and-gamestop-essential-issues-and-next-steps-for-regulators-and-investors/ |website=harvard.edu}}</ref> | ||
=====Exploitation of Inexperienced Investors===== | =====Exploitation of Inexperienced Investors===== | ||
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Users are forced into mandatory arbitration, limiting their ability to seek legal redress.<ref name=":3" /> | Users are forced into mandatory arbitration, limiting their ability to seek legal redress.<ref name=":3" /> | ||
== | ==Incidents== | ||
=== Death of a trader === | |||
In 2020 a user committed suicide after misinterpreted a negative balance due to poor UI design, leading to backlash over risk disclosures. | |||
=== GameStop short squeeze === | |||
''main article: [[GameStop Short Squeeze]]'' | |||
In 2021, decisions to restrict trading fueled accusations of market manipulation and hypocrisy due to it's 'for the people' branding. | |||
==References== | ==References== | ||
Latest revision as of 11:04, 6 July 2025
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Robinhood Financial
_logo.svg){kind=logo}
| Basic information | |
|---|---|
| Founded | 2013 |
| Type | Subsidiary |
| Industry | Financial Services |
| Official website | http://robinhood.com/ |
Robinhood Financial, LLC, is a wholly-owned subsidiary of Robinhood Markets, Inc. The US app based brokerage company offers commission free stock and ETF trading ( exchange-traded funds ). Founded in 2013 by two former Stanford University room mates, the app was launched in 2015. Their mission is to democratize finance for all.
Consumer impact summary[edit | edit source]
Mission statement[edit | edit source]
- Democratizing: Removing fees and simplifying investing for individual investors.[1]
- Accessibility: Offering fractional shares, a mobile-first platform, and educational resources.[1]
- Inclusivity: Targeted young and less wealthy investors that historically were excluded from traditional brokerage services.[2]
Business model[edit | edit source]
Operates on a commission free trading model for individual investors. Generating revenue through:
- Payment for order flow (PFOF): Selling customer trades to high frequency trading firms earning rebates for each trade. This accounts for a significant percentage of its revenue.[3]
- Robinhood Gold: Subscription service offering margin trading and advanced feature for five dollars a month.[3]
- Interest on cash and securities lending: Earning from idle cash in user accounts and lending shares to short sellers.[4]
Critics argue that PFOF creates a conflict of interest, as they may prioritize routing orders to the highest paying firms rather than ensuring the best execution for customers.
Negative impacts[edit | edit source]
Misleading Practices and Lack of Transparency[edit | edit source]
- Fined $65 million by the SEC in 2020 for failing to disclose how PFOF led to inferior trade execution prices, costing customers $34.1 million in aggregate. The platform claimed trades were "commission-free" but hid the true costs.[5][6]
- Massachusetts regulators fined Robinhood $7.5 million in 2024 for using deceptive gamification tactics (e.g., digital confetti, scratch-off stock rewards) that encouraged risky trading without adequate investor protections.[7]
Systemic Compliance Failures[edit | edit source]
- (Paid $29.75 million in 2025 to settle the Finance Industry Regulatory Authority (FINRA) probes for failing to detect suspicious account activity, leaving customers vulnerable to hacking and fraud.[8]
- Fined $45 million in 2025 by the SEC for failing to safeguard customer data, leading to a 2021 breach exposing millions of users’ information.[9]
Restricting Consumer Choice[edit | edit source]
- During the 2021 they abruptly halted trading in meme stocks, citing clearinghouse deposit requirements. This left individual investors unable to capitalize on market movements while institutional traders faced fewer restrictions. Critics argued this violated consumer rights by favoring systemic stability over fair access.[10][11][12]
Exploitation of Inexperienced Investors[edit | edit source]
- Robinhood’s reliance on financial influencers (finfluencers) led to a $26 million FINRA fine in 2025 for failing to supervise misleading promotions (e.g., claims of "living financially free" from dividends).[13]
- The platform’s design prioritized engagement over fiduciary duty, pushing users toward frequent trading, a practice Massachusetts deemed a violation of its fiduciary rule.[7]
Ongoing ethical and regulatory concerns[edit | edit source]
Conflicts of Interest[edit | edit source]
Robinhood’s revenue model (e.g., PFOF, stock lending) often misaligned with customer best execution rights.[6][11]
Arbitration Clauses[edit | edit source]
Users are forced into mandatory arbitration, limiting their ability to seek legal redress.[10]
Incidents[edit | edit source]
Death of a trader[edit | edit source]
In 2020 a user committed suicide after misinterpreted a negative balance due to poor UI design, leading to backlash over risk disclosures.
GameStop short squeeze[edit | edit source]
main article: GameStop Short Squeeze
In 2021, decisions to restrict trading fueled accusations of market manipulation and hypocrisy due to it's 'for the people' branding.
References[edit | edit source]
- ↑ 1.0 1.1 DCF Team, The. "Mission Statement, Vision, & Core Values of Robinhood Markets, Inc. (HOOD)". dcfmodeling.com.
- ↑ Boorstin, Julia (May 25, 2021). "Robinhood's disruptive force: The good, the bad and the controversy". CNBC.com.
- ↑ 3.0 3.1 Goldfine, Jael (January 28, 2021). "Robinhood's business model and backlash, explained". businessofbusiness.com.
- ↑ Cabral, Sarah; LaCombe, Amy (December 1, 2021). "Robinhood, Reddit, and GameStop: What Happened and What Should Happen Next?". scu.edu.
- ↑ Fitzgerald, Maggie (December 17, 2020). "SEC charges Robinhood with misleading customers about how it makes money". CNBC.com.
- ↑ 6.0 6.1 "SEC Charges Robinhood Financial With Misleading Customers About Revenue Sources and Failing to Satisfy Duty of Best Execution". SEC.gov. December 17, 2020.
- ↑ 7.0 7.1 Hill, Paul (February 12, 2024). "Game Over: Robinhood Pays $7.5 Million to Resolve "Gamification" Securities Violations". velaw.com.
- ↑ Stempel, Jonathan (March 7, 2025). "Robinhood paying $29.75 million to end US regulator's probes". Reuters.com.
- ↑ "Two Robinhood Broker-Dealers to Pay $45 Million in Combined Penalties for Violating More Than 10 Separate Securities Law Provisions". SEC.gov. January 13, 2025.
- ↑ 10.0 10.1 Orcutt, Johnathan (February 25, 2021). "The Legal Impact: Robinhood". unh.edu.
- ↑ 11.0 11.1 Cabral, Sarah; LaCombe, Amy (December 1, 2021). "Robinhood, Reddit, and GameStop: What Happened and What Should Happen Next?". scu.edu.
- ↑ Goodman, Lawrence; Lofchie, Steven; Lumsdaine, Robin (February 23, 2021). "Robinhood and GameStop: Essential Issues and Next Steps for Regulators and Investors". harvard.edu.
- ↑ Powell, Robin (March 24, 2025). "Robinhood Case Highlights Risks Posed by Finfluencers". ifa.com.