This recently posted article does a good job of explaining how Discount Brokerages make money.

tl;dr - order flow is $$$, but interest is even better.

1- Interest

2- Commissions

3- Asset Management

4- Securities Lending

5- Payment for Order Flow

https://news.ycombinator.com/item?id=20276551

https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...

Robinhood sells their order flow to the likes of Citadel, Virtu, etc.. These are called "internalizers" and they will often "Pay for Order Flow" or pfof. pfof flow is certainly profitable, because its "retail" and bi-directional. But it's not THAT profitable. For the big guys, it might be a few $10s of millions of dollars in revenue/years. But that revenue is significantly defrayed by the cost to purchase the flow - which is easily in the $10s of millions/year as well. Net net, its still a drop in the bucket compared to money being made in other strategies.

Typically, these pfof arrangements require price improvement from the bid-ask. So the retail guy benefits a negligible amount on their trade (1/10th of a penny for example). This may be good for the retail guys in aggregate. There is also some immediacy to an order getting filled (also a requirement) that may not be there if the internalizers didnt exist.

Robinhood's valuation comes from the net interest (borrowing short and lending long) and from the upsell of services.

https://news.ycombinator.com/item?id=20276551 << refer to the excellent article and discussion here about how brokerages make money.

Where attention should be turned is whether RobinHood is investing or gambling. More money is lost punting on the markets than through any arrangements to hi-freq guys.

Since this comment gained traction, here are some better examples of what I meant by dumbledore's office:

A romp through approaches to generative adversarial networks described as if they are realms in a Tolkein world. https://news.ycombinator.com/item?id=20251308

(This week's) complete guide to building a terminal text editor from scratch in C which gently holds your hand at each step: https://news.ycombinator.com/item?id=14046446

Stumbling down the root domain of the above link leads you to the collected archive of _why_the_lucky_stiff, a hacker artist who created technical documentation as if it were a work of literature, animating and writing songs about ruby in a unique aesop meets kaftka meets neutral milk hotel style, and who then suddenly disappeared and deleted his whole internet persona, transmitting a 96-page oblique missive years later as individual PCL files. https://viewsourcecode.org/why/

Someone documents how using the 30+ year old, tiny awk language let him do what all the latest fad big data tools couldn't https://news.ycombinator.com/item?id=20293579

Several posts this past week from natashenka's Project Zero blog led me to her passion project of being the world's leading expert in hacking tamagutchis, which read as part instructional and part love letter to digital pets http://natashenka.ca/

Even though I'm ostensibly in the same industry as retail brokerages, I've never understood their business models as well as I did when I read this thread https://news.ycombinator.com/item?id=20276551

Not to keep going, but just to have a less lame example than a couple introductory textbooks -- I didn't mean to imply HN as a surrogate class syllabus