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.
E.J. Smith - Your Survival Guy
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