Cryptocurrency trading platform Robinhood, loved by millennials for its low fees investment App, has been mining millions of dollars by secretly selling their clients’ data to high-frequency trading (HFT) companies on Wall Street. This sounds like a clear case of stealing from millennials to benefit the rich and mighty.
This shocking revelation is contained in a Second Quarter filing of the Securities and Exchange Commission (SEC). North of Sunset Publishing writer Logan Kane reported that the US-based mobile stock brokerage firm that promotes ethical and commission-free trading had had a mega-profit making scheme that involves selling user and contact data to Financial Companies.
SEC’s report says in part:
“Robinhood accepts payment for order flow, but on a back-of-the-envelope calculation, they appear to be selling their customers’ orders for over ten times as much as other brokers who engage in the practice. It’s a conflict of interest and is bad for you as a customer.”
Robinhood’s website charms potential customers by using attractive phrases such as “we believe that the financial system should work for the rest of us, not just the wealthy,” and promises to remove the features that make their competitors costly including manual management and tens of storefront locations to offer customers “zero commission trading.”
Unfortunately, the SEC report shows that the same investment firm has been engaging with other firms on their client’s data such as contact information, purchasing preferences and demographics when it has posed itself against such practices by Wall Street firms that pull the same tricks.
Brokerage Firms and HFT
Brokerage firms are divided on the matter of selling customer data to HFT firms. For instance, Vanguard completely refuses to make profits from customers’ data while Interactive Brokers, the darling broker for sophisticated retail customers doesn’t sell order flows instead allowing customers to direct orders to the exchanges of their choice.
Commenting on Robinhood’s strange tactic Logan Kane states further:
“Robinhood not only engages in selling customer orders but seems to be making far more than their competitors from it. Among brokers that receive payment for order flow, it’s typically a small percentage of their revenue but a big chunk of change nonetheless.”
Robinhood’s behavior represents a serious breach of confidentiality for over four million active users and resonates as an outstanding act of deception by a firm that seems to have forgotten the golden rule. A similar report by Seeking Alpha reveals that by using underhand practices, Robinhood could be raking as much as $500 million per quarter from HFT firms.