Robinhood : Robbing from the poor, Giving to the rich?

I am a believer in free markets — hence I am resisting any temptation to make left leaning Robinhood innuendos.

However, I do hate duplicity more.

On their website, Robinhood clearly lays out how they make money …

Does ‘collecting interest on cash’ even pay for the office coffee??

… except what is probably the biggest stream of revenue: selling order flow.

So what is selling order flow anyway? The gist is:

a. Rather than sending your order to a stock exchange (like one would think) like NYSE (or more accurately, IEX)

b. Robinhood sells your order to a private liquidity venue (read: dark pool) like Knight Capital and gets paid for doing so .

umm? Sounds a lot more than 0.01% APY that banks pay.

Now over the years, order execution has become enormously complex and how Robinhood routes its order is largely immaterial to the retail investor but if you don’t disclose that you get paid for >90% of the volume (sold to one of Citadel, Knight or Two Sigma) …

… Robinhood sounds far less heroic;

At best a sidekick informant to the Dark Knight.

End note: Selling order flow is legal (so whats the Bernie Madoff angle?); but at odds with the letter and spirit of Robinhood’s product. They should either stop selling flow or better, be transparent about the revenue.