Robinhood is a financial services company that was founded in 2013 by Baiju Bhatt and Vladimir Tenev. The company operates Robinhood Financial, Robinhood Crypto, Robinhood Securities subsidiary companies through which they offer ETFs, stock investment portfolios, and crypto trading among other financial services. It entirely operates online and offers services through its website and mobile apps designed for Android devices, iPhones, and Apple Watch. Robinhood is registered with the US Securities and Exchange Commission and is regulated by FINRA. It is also a member of the Securities Investor Protection Corporation. Headquartered in Menlo Park, California, Robinhood had 1,094 employees and a revenue turnover of $100.6 million.
Robinhood Markets, Inc.
Menlo Park, California
Stock Brokers and Dealers
Who Is Robinhood’s Biggest Competitor?
When it comes to stock trading, Vanguard Group is Robinhood’s biggest competitor. The company is the second-largest assets management company in the world. It was founded in 1975 and is headquartered in Valley Forge, Pennsylvania. Its revenue for 2019 was $468 million, over 4 times what Robinhood made.
Robinhood top 10 competitors include: Coinbase, E*Trade, The Charles Schwab Corporation, Fidelity Investments, M1 Finance, Firstrade, TD Ameritrade, Stash Invest, Vanguard Group, and Acorns.
How Robinhood Makes Money
Robinhood was founded to offer commission-free brokerage services. It has over six million users, most of whom are the younger millennial generation. So how does it make its money? The company has four primary revenue streams- Robinhood Gold, rebates from market makers, income from cash, and cash management.
Robinhood Gold is a premium subscription service that allows clients to make large deposits without having to wait for the standard verification period. Besides that, they also get to trade during pre-market and after-market sessions. They are given access to margin investing, research reports from Morningstar, and NASDAQ Level II Market Data.
The company offers a free 30-day trial period and then charges clients $5 per month to use the service.
Rebates from Market Makers and Trading Venues
Robinhood also earns revenue from selling client orders to market makers and high-frequency trading firms such as Citadel Securities. When a client places an order for a stock, the company sends the orders to a market maker who pays a processing fee to Robinhood. Bloomberg estimates that over 40% of Robinhood’s revenue comes from this segment.
But the revenue from this segment varies depending on the number of stocks traded or options contracts.
Income from Cash
The company invests idle cash in client’s accounts in cash deposits that attract interests. While the amount is small and insignificant as far as individual accounts are concerned, it is a massive source of revenue when spread across the more than 6 million Robinhood accounts.
Lastly, the company issues a Robinhood Mastercard debit card through Sutton Bank and makes money from interchange fees. This is operated by Robinhood Financial. In this segment, the company’s Robinhood Securities and Robinhood Financial subsidiaries also receive fees from program banks to sweep funds to them.
Besides the four primary revenue streams, Robinhood also makes money from lending counterparties stocks that are purchased on margins.
Fred Ehrsam and Brian Armstrong founded Coinbase in 2012. The company is headquartered in San Francisco, California. It is a digital currency exchange company that brokers the exchange of cryptocurrencies such as Bitcoin, Bitcoin Cash, Litecoin, and Ethereum Classic among others. The platform has more than 35 million users spread across over 100 countries. It has traded over $220 billion in cryptocurrencies and has $7+ billion assets in its custody. As of 2019, Coinbase had 1,123 employees and a revenue turnover of $520 million.
Both Coinbase and Robinhood are among the most reputable cryptocurrency trading companies. But Coinbase primarily deals with crypto trading while Robinhood’s primary focus is on traditional stocks. If you are looking to invest in both traditional stocks and cryptos, Robinhood is a perfect choice. But Coinbase is the best alternative for investing solely in cryptocurrencies. Compared to Robinhood’s seven cryptocurrencies, Coinbase offers up to 28 different cryptocurrencies. You can also withdraw the cryptocurrencies into your personal wallet.
William Porter and Bernard Newcomb founded E*Trade in 1982 as TradePlus. The company started offering online trade the following year. It offers an online platform for trading in financial assets such as preferred stocks, common stocks, mutual funds, exchange-traded funds, futures contracts, options contracts, and fixed-income investments. E*Trade also provides other services including margin lending, cash management services, online banking, employee stock ownership plans, and student loan benefit administration. The company is headquartered in Arlington, Virginia, and has 4,100 employees. Its revenue for 2019 was $3.14 billion.
E*Trade is the oldest online brokerage firm in the US. It offers a wider range of investment options compared to Robinhood. For example, it has fixed-income securities and mutual fund schemes, unlike Robinhood. It also provides banking services while Robinhood only provides debit cards. But E*Trade only started offering $0 commission trades in October 2019. The charges for an options contract is at $0.65 while Robinhood doesn’t charge anything. E*Trade was acquired by Morgan Stanley in February 2020.
The Charles Schwab Corporation
Charles Schwab Corporation was founded in 1971 by Charles Schwab. It is a multinational financial services company headquartered in San Francisco, California with a presence in about 345 locations, primarily in the US and Britain. Its services include commercial banking, stock brokerage, and wealth management advisory to both retail clients and institutions. Charles Schwab Corporation was the world’s third-largest asset manager in 2019. It employs 19,700 people and posted a revenue turnover of $10.72 billion in 2019.
Charles Schwab Corporation is a better alternative to Robinhood, especially for beginners. It offers investors educational material and videos for its different investment products to be able to make an informed decision. It also has a more diverse range of investment options that include Fractional Shares, Pink Sheets, and advisory services.
Headquartered in Boston, Massachusetts, Fidelity is a financial services corporation founded in 1946 by Edward C. Johnson II. It is among the largest asset managers in the world with around $2.7 trillion assets under management. Its investment products include mutual funds, retirement and IRAs, ETFs, trading, stock, and cash management among others. As of 2019, Fidelity had 40,000 employees and a revenue turnover of $20.9 billion.
Founded in 1946, Fidelity is a more established discount online broker compared to Robinhood which only came into the scene 7 years ago. It offers investors advanced research tools that enable them to develop their trading skills. On the other hand, Robinhood is more suited to new investors who are looking for a straightforward, user-friendly platform to use.
Headquartered in Chicago, Illinois, M1 Finance is an online financial services company that was founded by Brian Barnes in 2015. It is registered as a broker-dealer with the Securities and Exchange Commission as a broker and is also a member of FINRA and SIPC. The company has over $1 billion in assets under management. As of 2019, M1 Finance had about 55 employees and a revenue turnover of $12.3 million.
M1 Finance enables clients to invest in both stocks and ETFs as a single unit known as pies. The platform is designed for long-term investors by offering prebuilt portfolios and dividend reinvestment. M1 Finance also offers retirement accounts on its platform.
John Lie founded First Flushing Securities in 1985 to enable the local community to invest. The company was renamed Firstrade Securities in 1997. Headquartered in Flushing, New York, Firstrade is a stock brokerage firm that offers an electronic platform for trading in stocks, ETFs, mutual funds, bonds, and contract options. The compay has 110 employees. Its revenue turnover for 2019 was $10.1 million.
Firstrade offers the lowest commissions in the industry on all investment products. It also offers mutual funds, which Robinhood doesn’t. What makes Firstrade a better alternative to Robinhood is that its website is easy to use and the services are available in the Chinese language too.
TD Ameritrade is a broker that offers an electronic platform for trading financial ssets such as fixed-income investments, mutual funds, options, exchange-traded funds, futures contracts, preferred stocks, common stocks, and cryptocurrencies. It also offers margin lending and cash management services. Joe Rickettsfounded the company in 1971 as Ameritrade. In 2006, it merged with TD Waterhouse and rebranded to TD Ameritrade. Headquartered in Omaha, Nebraska, TD Ameritrade had 9,226 employees and a revenue turnover of $6.01 billion in 2019.
Both Robinhood and TD Ametritrade offer customers access to free stock, ETF trades, and wide range of mutual funds. Most of the transactions are commission-free. But TD Ameritrade has a broader range of financial services compared to Robinhood. Clients also get access to the ThinkorSwim free trading software which, unlike Robinhood’s, foeers more than just a trading platform.
Stash was founded in 2015 by Ed Robinson, Brandon Krieg, and David Ronick. It is headquartered in New York City, New York. It is an online financial services company that allows clients to invest in fractional stocks, ETFs, IRAs, personal brokerage accounts, and retirement accounts through its web platform and mobile apps. The company also offers investors offers financial education and automatic investing. As of 2019, Stahs had 265 employees and a revenue turnover of $39.1 million.
While Robinhood is completely free to use for investors, it doesn’t offer any guidance of education to users. On the other hand, Stash helps users to build a diversified portfolio. But this comes at a steep price.
Vanguard was founded by John C. Bogle in 1975. Headquartered in Valley Forge, Pennsylvania, the company offers financial services that include mutual funds, ETFs, annuities, brokerage, asset management, and education account services among others. Vanguard is the second-largest asset management company in the world. As of 2019, the company had 17,600 employees and a revenue turnover of $468 million.
While Robinhood pioneered commission-free online trading, Vanguard is the world’s second-largest asset manager. The former is best suited to investors who want to trade regularly and actively manage their investments. Vanguard, on the other hand, is one of the best alternatives for high earning investors who are looking to make long-term investments.
Acorns was founded in 2012 by Jeffrey J. Cruttenden and his father Walter W. Cruttenden III. Headquartered in Irvine, California, the company specializes in robo-investing and micro-investing. It manages over $1.2 billion in assets and has more than 4.5 million users. Its services also include checking account services and retirement IRA products. As of 2019, Acorns had 390 employees and a revenue turnover of $64.7 million.
Both Acorns and Robinhood provide investors with low-cost ways of investing money. But while Robinhood does not charge any commissions or monthly subscription fees (apart from Robinhood Gold users), Acorns charges between $1 and $3 every month. Robinhood is suited to indivoduals who want to be in charge of their investments. Acorns, on the other hand, is intended for investors who are okay with others handling their investments- mostly beginners who don’t know how to invest. But the charges reduce their returns.
The top 10 Robinhood competitors are: Coinbase, E*Trade, The Charles Schwab Corporation, Fidelity Investments, M1 Finance, Firstrade, TD Ameritrade, Stash Invest, Vanguard Group, and Acorns. Their combined revenue for 2019 was $41.88 billion. Together, they had a total of 92,569 employees.