![]() ![]() ![]() Therefore, smaller brokers that don’t have the capacity to handle thousands of orders themselves, and instead leverage PFOF to both save costs and receive compensation. Day by day, equity and options trading are becoming increasingly complex. Payment for order flow is the compensation a brokerage firm receives from a market maker in exchange for routing trades. Payment for Order Flow (PFOF) is Distorted Considering that Robinhood’s revenue is so fixated around market makers-or Citadel Securities, to be more specific, which has the same majority owner of Citadel LLC the hedge fund-the subject of “conflict of interest” is more applicable than ever. However, what is more surprising is that 43% of Robinhood’s Q1 2021 revenue came from Citadel Securities alone. In addition, the company has also revealed in the report that 59% of its total revenue in Q1 2021 came from four market makers, which accounts for $195 million. Following some calculations, we discover that Robinhood earned a whopping $719 million from PFOF and transaction rebates in 2020. Notably, the S-1 form reveals that 75% of Robinhood’s $959 million revenue in 2020 was derived from PFOF and transaction rebates. In comparison to Q1 2020, Robinhood’s revenue increased by a staggering 263%, totaling $331 million, according to an SEC earnings report. Moreover, Robinhood’s Q1 2021 revenue suggests that the fashionable stock trading app has resumed its surge. Data reveals that Robinhood garnered a net profit of $7.45 million on net revenue of $959 million in 2020. At a time when a substantial number of businesses faced enduring losses, Robinhood managed to generate a significant boost in revenue. Could this concentration impact the way Robinhood does business? How Much Does Robinhood Make From Payment for Order Flow (PFOF)?Ģ020 was a prosperous year for the modernized stock trading app Robinhood. In addition, PFOF and transaction rebates aggregated 81% of the company’s total revenue in Q1 2021.Ĭlearly, Robinhood’s revenue is tremendously concentrated around market makers. In a recent S-1 filing with the SEC, Robinhood unveiled that 75% of its entire 2020 revenue was derived from ‘PFOF and transaction rebates’. Please consult our website policy prior to making financial decisions. Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. ![]()
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