Robinhood buys stocks from market makers, not directly from companies
When you buy a stock through Robinhood, you are not buying it from the company that issued it. Instead, Robinhood purchases stocks from market makers — firms that hold inventory of shares and sell them to brokers like Robinhood throughout the trading day. Robinhood then sells those shares to you at the price you see on the app.
This is how nearly all retail brokers work. Companies issue shares once, usually through an initial public offering (IPO) or a secondary offering. After that, shares trade between investors, brokers, and market makers on public exchanges. Robinhood sits in the middle of that chain, buying from market makers and selling to you.
The stocks themselves are real — they represent actual ownership in the company. But the path they take to reach your account goes through multiple intermediaries, not directly from the company to you.
Key Takeaways
- Robinhood purchases stocks from market makers, which are firms that maintain inventory of shares and facilitate trading throughout the day.
- When you buy a stock on Robinhood, you own real shares that represent actual ownership in the company, even though they come through intermediaries.
- Robinhood executes your order by routing it to an exchange or market maker, depending on the type of security and current market conditions.
- The price you see on Robinhood reflects what market makers are willing to sell for at that moment, plus any fees or spreads Robinhood adds.
- Robinhood does not create or print shares — it acts as a broker connecting you to existing shares trading on public markets.
How Robinhood routes your stock order
When you place a buy order on Robinhood, the app does not when ready find a seller and match you. Instead, Robinhood routes your order to an exchange or to a market maker that has shares available. The most common route is to a market maker, because market makers stand ready to buy and sell at any moment during market hours.
Robinhood has relationships with multiple market makers. The app may route your order to one of several firms depending on which one can fill it fastest or at the best price. This happens in milliseconds — you see the order execute almost when ready on your screen.
For some orders, Robinhood may route to a public exchange like the Nasdaq or New York Stock Exchange instead. The outcome is the same: your order gets filled by someone who already owns shares and is willing to sell them at the current market price.
What market makers are and why they matter
Market makers are trading firms that buy and hold large quantities of stocks so they can sell them quickly to brokers and other traders. They make money on the difference between what they pay for a stock and what they sell it for — this difference is called the spread. A market maker might buy shares at $100.00 and sell them at $100.05, keeping the five-cent difference as profit.
Market makers exist because they solve a real problem: without them, every buyer would have to wait for a seller to show up. Instead, a market maker is always there, ready to sell. This keeps markets liquid, meaning shares can be bought and sold quickly at any time during trading hours.
Robinhood does not compete with market makers — it works with them. Robinhood collects a small spread or fee when it sells you shares that came from a market maker, and the market maker keeps its own spread. You pay the final price that includes both.
Why Robinhood shows you the price it does
The price you see when you buy a stock on Robinhood is determined by what market makers are currently willing to sell for. If the last trade of Apple stock happened at $150.00, but the market maker Robinhood is routing to will only sell at $150.02, that is the price you see.
Robinhood may add a small markup on top of the market maker's price, though the company has said it aims to keep this transparent. The exact markup varies depending on the stock, the time of day, and market conditions. During volatile trading or after market hours, spreads widen and prices move more.
You can see the bid-ask spread in the Robinhood app — the bid is what buyers are offering, and the ask is what sellers want. When you buy, you pay the ask price. When you sell, you receive the bid price. The gap between them is where market makers and brokers make their money.
How Robinhood makes money without charging commissions
Robinhood famously offers commission-free stock trading, meaning you do not pay a per-trade fee. Instead, Robinhood makes money in three main ways: the spread on stock sales, interest on cash held in accounts, and payment for order flow.
Payment for order flow (PFOF) is the most important one. When Robinhood routes your order to a market maker, that market maker pays Robinhood a small fee for the business. The market maker is willing to pay because they profit on the spread when they sell you the shares. Robinhood keeps this payment, which is how it covers its costs and makes a profit without charging you directly.
This arrangement is legal and disclosed in Robinhood's terms, but it is worth understanding: the market maker paying Robinhood creates an incentive for Robinhood to route orders to the highest bidder, not necessarily to the market maker offering the best price for you. Robinhood says it prioritizes price improvement, but the structure means your interests and Robinhood's interests are not perfectly aligned.
The difference between owning shares and owning them outright
When you buy a stock through Robinhood, you own the shares — they are registered in your name (or in Robinhood's name on your behalf, depending on your account type). You can sell them anytime, receive dividends if the company pays them, and vote in shareholder meetings if you choose to.
You do not own a certificate or a physical share — that stopped being common decades ago. All stock ownership is now electronic and tracked through brokers and clearing firms. Robinhood holds the record that you own the shares, and that record is backed by the Depository Trust Company (DTC), a central clearinghouse for all U.S. stock trades.
If Robinhood went out of business, your shares would not disappear. The Securities Investor Protection Corporation (SIPC) protects customer accounts up to $500,000, and your shares would be transferred to another broker so you could continue to own and trade them.
Where Robinhood gets money to buy shares before you pay
Robinhood does not wait for your money to arrive before it buys shares. When you place a buy order, Robinhood has already arranged credit lines with its market maker partners and clearing firms. Robinhood buys the shares when ready and settles the transaction with you within two business days (the standard settlement period for stock trades).
This is why you can see your shares in your account right away, even though the cash transfer from your bank account may take a day or two. Robinhood is essentially lending you the shares for those two days, then your cash arrives and the loan is repaid.
During market hours, Robinhood has enough credit available to handle millions of simultaneous trades. If you place an order and it executes, the shares are yours when ready, even if your bank transfer has not cleared yet.
Frequently Asked Questions
Does Robinhood own the stocks before selling them to me?
Robinhood does not hold a large inventory of stocks itself. Instead, it routes your order to a market maker that owns the shares. The market maker sells to Robinhood (or directly to you through Robinhood's system), and you own the shares seconds after you place the order. Robinhood is a broker, not a dealer holding inventory.
Can I see which market maker Robinhood routed my order to?
Robinhood does not show you the specific market maker in the app. You can see the price you paid and the time of execution, but not the identity of the counterparty. This information is available in your account statements and in regulatory filings, but Robinhood does not highlight it in the user interface.
Why is the price on Robinhood different from the price I see elsewhere?
Prices can differ slightly between brokers because each broker routes to different market makers, and market makers adjust their prices constantly based on supply and demand. A difference of a few cents is normal. Larger differences usually mean you are looking at prices from different times — stock prices change every second during market hours.
What happens to my shares if Robinhood goes bankrupt?
Your shares are protected by SIPC insurance up to $500,000 per account. If Robinhood failed, the shares would be transferred to another broker so you could continue to own and trade them. The shares themselves are held at the DTC, a central clearinghouse, so they exist independently of Robinhood's financial health.
Does Robinhood lend out my shares to short sellers?
Robinhood can lend shares from margin accounts to short sellers, which is standard practice at brokers. If you have a cash account (not margin), your shares are not lent out. You can check your account type in the app settings. If you do not want your shares lent, a cash account prevents it.