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Robinhood and Zero Commissions: How an app changed retail trading forever
The disruption that forced all major trading platforms to eliminate commissions — and the unspoken consequences
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MarketPedia Editorial
8 min read·October 1, 2024
By 2019, Robinhood already had millions of users thanks to zero commissions. Then Charles Schwab, TD Ameritrade, and Fidelity eliminated them within 48 hours. The retail trading model was redesigned.
The Robinhood Model
Robinhood was founded in 2013 with a simple proposition: zero commissions on trades. The actual business model was Payment for Order Flow (PFOF): selling customer order flow to market makers like Citadel Securities.
The 2019 Domino Effect
On October 1, 2019, Charles Schwab announced the elimination of commissions. Within 48 hours, TD Ameritrade, E*Trade, and Fidelity followed suit. The industry lost approximately $1 billion in annual commission revenue.
Lessons
- "Free" is rarely free: if the product is free, you are the product.
- PFOF creates conflicts of interest: the platform earns from your trading, not your profits.
- Easy access does not replace education: lowering barriers does not change the odds of trading success.
# Robinhood# Commissions# Retail# PFOF# Disruption