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GameStop Helps Explain Robinhood’s Free Stock Trades

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By Constantin Stanciu @ Shutterstock.com

As I explained to you yesterday in Money 101: There’s a Reason Family Always Comes 1st, when something is free, you’re probably the product being sold. Sold to whom? Well, in the case of GameStop, for example, Robinhood sold high-speed traders customer order flow as reported in the WSJ back in December:

Robinhood Financial LLC has agreed to pay $65 million to settle regulatory claims that it didn’t sufficiently disclose its business deals with high-speed trading firms, the Securities and Exchange Commission said Thursday.

The fine is a setback for the fast-growing company, which has helped millions of investors access the stock market during this year’s extraordinary coronavirus-fueled volatility, many of them newcomers to investing.

The settlement resolves one regulatory cloud over Robinhood, a Silicon Valley startup that launched trading in 2015 and says its mission is to reduce barriers to investing. The company’s sleek technology makes trading visually appealing and encourages users to speculate although Robinhood says most of its customers aren’t active day traders.

According to the SEC, Robinhood failed until 2018 to fully reveal on its website how it makes money from its deals with speedy trading firms such as Citadel Securities and Virtu Financial Inc. Robinhood and other retail brokerage firms generate revenue by routing customers’ orders to high-speed traders, which pay for the right to execute many of the trades.

If you don’t want to be Robinhood’s product, consider opening an account at my favored Fidelity.

Action Line: When you use free search from Google, or other free products, remember the customer isn’t you. You’re the product. Your information, collected via the virtual panopticon, is sold to advertisers, governments, and others for profit.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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