Seeking Alpha Spotlights Robinhood Investing App for Selling Millennial Data to High-Frequency Traders
Stealing from the Poor to Give to the Rich? RobinHood App Sells Users Data to Financial Companies
According to a document filed by the US' Securities and Exchanges Commission in the second quarter, Robinhood Financial (Robinhood) is making a profit of millions of dollars off the back of selling users' data to high-frequency trading firms (HFT).
The Logic at Play – Stealing From User to Pay Another?
This represents, not only a serious breach of confidentiality for its countless users, but represents a truly remarkable act of hypocrisy from the company that espouses values such as ethical trading practices to benefit the average user and is instead selling off their information for a quick buck for traders on Wall Street.
Taking a quick glimpse at Robinhood's website presents its visitors with feel-good statements and sanctimonious statements like
“We believe that the financial system should work for the rest of us, not just the wealthy.” Including “We’ve cut the fat that makes other brokerages costly, like manual account management and hundreds of storefront locations so we can offer zero commission trading.” Hypocrisy at its most unfortunate.
Allegedly Robinhood news would distribute information related to statistics like customer demographics and purchasing preferences, the company itself has, on more than one occasion touts its zero-commission trading options, positioning itself as being diametrically opposed to the conventional grain of typical Wall Street brokers.
Unfortunately, it turns out that Robinhood actually sells users' order details at a far higher rate than other financial companies tend to do, charging their HFT buyers ten times more as well. All the while, competitor companies like Vanguard and Interactive Brokers (IBKR) don't participate in the selling of users' data and IBKR even allows customers to place their orders through a variety of exchanges.
Robinhood doesn't exactly make a point of mentioning the major profits it draws in by margin lending and interest that's generated from the balances of customer accounts, but this recent publication made by the SEC filing demonstrates that the company could be heavily reliant on the revenue generated from the sale of user data.
The Deeper Concerns With This
A further report made by Seeking Alpha demonstrates that Robinhood's sale of customer data represents ‘a conflict of interest, and is bad for you as a customer.' The same report then proceeds to go into detail regarding the hypothetical calculation of how Robinhood could ‘theoretically' draw in over $500 million per quarter from HFT firms if their volume was as high as E*Trade.
The overall sale of user data by Robinhood should, on its own, be a serious cause for concern for current and future customers as a handful of companies that do obtain financial data from Robinhood have previously investigated and fined by the SEC for illegal trading. In that same area, in January of 2017, the company Citadel Securities LLC was fined $22 million for publishing “misleading statements” about the way in which it priced up its various trades.