Robinhood Financial

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Robinhood Financial

Basic information
Founded	2013
Type	Subsidiary
Industry	Financial Services
Official website	http://robinhood.com/

Background

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.

Mission statement

• Democratizing: Removing fees and simplifying investing for individual investors.

• Accessibility: Offering fractional shares, a mobile-first platform, and educational resources.

• Inclusivity: Targeted young and less wealthy investors that historically were excluded from traditional brokerage services.

Business model

Operates on a commission free trading model for individual investors. Generating revenue through:

• Payment for order flow (PFOF):
• Robinhood Gold:
• Interest on cash and securities lending:

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.

Public sphere

Negative impacts and controversies

Misleading Practices and Lack of Transparency

• 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.

• 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.

Systemic Compliance Failures

• (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.

• Fined $45 million in 2025 by the SEC for failing to safeguard customer data, leading to a 2021 breach exposing millions of users’ information.

Restricting Consumer Choice

• During the 2021 GameStop short squeeze, Robinhood 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.

Exploitation of Inexperienced Investors

• 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).

• The platform’s design prioritized engagement over fiduciary duty, pushing users toward frequent trading, a practice Massachusetts deemed a violation of its fiduciary rule.

Ongoing ethical and regulatory concerns

Conflicts of Interest

Robinhood’s revenue model (e.g., PFOF, stock lending) often misaligned with customer best execution rights.

Arbitration Clauses

Users are forced into mandatory arbitration, limiting their ability to seek legal redress.

January 2021 restrictions on customer trading

On January 28, 2021, Robinhood systems restricted customer trading in certain securities for companies with heightened stock volatility, including GameStop, AMC Entertainment, and Bed Bath and Beyond. CNBC reported that the brokerage firm Interactive Brokers (IB) also imposed trading restrictions on the same day. Additionally, CNBC noted that other brokerages, such as TD Ameritrade and Charles Schwab, had increased margin requirements the day before—a move described as less 'drastic' compared to outright trading halts.

Customers should be aware that brokerages, including Robinhood, may take similar actions in the future. This poses a risk of economic harm, as investors could be artificially prevented from entering or executing trades during critical market movements.