Robinhood launched in 2013 as a mobile-first brokerage

Robinhood Financial LLC was founded in 2013 by Vladimir Tenev and Baiju Bhatt. The platform launched to the public in 2015 with a focus on commission-free stock trading through a mobile app. Before Robinhood, most brokerages charged per-trade fees that made small investments expensive for individual traders.

The company is based in Menlo Park, California, and operates as a registered broker-dealer regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Robinhood expanded beyond stocks to include options, cryptocurrencies, and fractional shares over the years following its initial launch.

Key Takeaways

  • Robinhood was founded in 2013 by Vladimir Tenev and Baiju Bhatt and opened to public users in 2015.
  • The platform introduced commission-free stock trading, which changed how retail investors could trade without paying per-trade fees.
  • Robinhood is regulated by the SEC and FINRA as a broker-dealer, not a bank or investment advisor.
  • The company has expanded its offerings to include options trading, cryptocurrency, and fractional shares since its 2015 launch.

Why Robinhood was created

Tenev and Bhatt built Robinhood to lower barriers to investing. At the time, traditional brokerages charged $5 to $10 per trade, which meant someone investing small amounts would lose a significant portion to fees. The founders wanted to make investing accessible to people who couldn't afford those costs.

The app-based model was central to this goal. By operating primarily through mobile rather than maintaining physical offices, Robinhood could operate with lower overhead and pass those savings to users through zero-commission trades. This business model later became standard across the industry, with most major brokerages eliminating their per-trade fees within a few years.

What Robinhood offered at launch

When Robinhood opened to the public in 2015, it offered commission-free trading in U.S. stocks and exchange-traded funds (ETFs). Users could buy and sell shares without paying a fee per transaction. The platform required a minimum account balance to start trading, though this minimum changed over time.

The app was designed for simplicity. Users could open an account, fund it through a bank transfer, and begin trading within days. Robinhood also introduced fractional shares, which allowed investors to buy partial shares of expensive stocks rather than needing enough money for a full share.

How Robinhood makes money

Without per-trade commissions, Robinhood generates revenue through other means. The primary source is payment for order flow (PFOF), where market makers pay Robinhood to execute customer trades. When you place a buy or sell order, Robinhood routes it to a market maker who pays for that order flow.

Robinhood also earns money from margin lending (charging interest when customers borrow to trade), premium subscription features like Robinhood Gold, and cash management features. Cryptocurrency trading generates revenue through spreads rather than commissions. This revenue model allows the platform to offer commission-free stock and ETF trading while still operating as a business.

Robinhood's expansion after 2015

In 2018, Robinhood added options trading, allowing users to trade call and put contracts. The platform later introduced cryptocurrency trading, starting with Bitcoin and Ethereum. In 2020, Robinhood expanded fractional shares to allow users to invest in partial shares of any stock, not just expensive ones.

The company also added cash management features, allowing users to earn interest on uninvested cash in their accounts. These expansions transformed Robinhood from a stock-trading app into a broader investment platform. Each addition came with its own regulatory requirements and compliance obligations.

Regulatory status and oversight

Robinhood is a broker-dealer registered with the SEC and a member of FINRA. This means it must follow rules about how it handles customer money, executes trades, and discloses risks. Customer accounts are protected by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 per account if the brokerage fails.

The company has faced regulatory scrutiny over payment for order flow practices, options trading safeguards, and cryptocurrency offerings. In 2021, Robinhood paid a $70 million settlement to the SEC and FINRA over supervisory failures and misleading marketing. These actions do not change how the platform operates, but they reflect ongoing regulatory oversight of the brokerage.

Frequently Asked Questions

Is Robinhood a bank?

No. Robinhood is a broker-dealer, not a bank. It does not take deposits or make loans in the traditional sense. Your cash in a Robinhood account is held in a custodial account, not a bank account, though Robinhood has partnered with banks to offer cash management features.

Who owns Robinhood now?

Robinhood is a private company owned by its founders and investors. The company filed for an initial public offering (IPO) in 2021 but withdrew the filing. As of now, Robinhood remains privately held, though ownership has changed as venture capital and other investors have bought stakes.

Can I lose more money than I invest on Robinhood?

Yes, if you use margin or trade options. Margin allows you to borrow money to trade, which can amplify losses. Options trading carries the risk of losing your entire investment in a single trade. Stock trading alone limits losses to your initial investment.

Does Robinhood charge any fees?

Robinhood charges no commission on stock and ETF trades. However, it does charge fees for margin interest, wire transfers, and some other services. Robinhood Gold, a premium subscription, costs money but offers features like margin and extended-hours trading.

What happens to my money if Robinhood goes out of business?

Your securities and cash are protected by SIPC up to $500,000 per account. SIPC coverage protects against brokerage failure, not market losses. If Robinhood fails, SIPC would transfer your account to another broker or return your assets.