Robinhood earns revenue by routing customer orders to market makers who pay for the right to execute those orders, a practice known as payment for order flow (PFOF), which may create a conflict of interest with getting customers the best possible execution price.
When you place a trade on Robinhood, your order may be executed at a price that is slightly less favorable than the best available market price because Robinhood routes orders to market makers who pay Robinhood for that order flow, effectively creating a hidden cost on each trade.
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Compare across platforms →Payment for order flow is Robinhood's primary business model, and while Robinhood markets itself as commission-free, the cost of trading may be embedded in slightly worse execution prices — a conflict of interest that regulators have scrutinized intensely.
(1) REGULATORY FRAMEWORK: Payment for order flow is regulated under SEC Rule 606 (order routing disclosure), SEC Rule 605 (execution quality disclosure), and Regulation Best Interest (17 CFR § 240.15l-1), which requires broker-dealers to act in retail customers' best interest including with respect to order routing decisions. FINRA Rule 5310 (best execution) also applies. The SEC has proposed significant amendments to Rule 605 and new order competition rules (Release No. 34-96496) that could fundamentally alter PFOF practices. (2)
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