31–40 of 96 posts
Isn't this the entire idea behind Robinhood? Obviously, they make money elsewhere (from interests on deposits?) but hasn't it been clear for years that they were getting paid by internalizers for order flow? Whoever you use to place stock market orders is also getting paid the same way. People have a funny idea of what a retail brokerage does. They do not execute orders on exchanges for you; that's a specialized capa…
Earlier quoted context omitted.
> A year in the making, Freetrade has built a bona-fide “challenger broker,” including obtaining the required license from the FCA (the U.K. regulator), rather than simply partnering with an established broker as it is understood Revolut initially plans to do. This, Dodds explained on a call, has enabled the startup to plug directly into the capital markets “piping,” with as few intermediaries as possible. It means F…
I saw that, but that just says they have (in some circumstances) the option to place their orders. I'm unclear why that would necessarily be a good thing, but either way: have they made a clear statement that they're not farming retail orders out to other firms? If they are, they're going to get paid for them.
Isn't this the entire idea behind Robinhood? Obviously, they make money elsewhere (from interests on deposits?) but hasn't it been clear for years that they were getting paid by internalizers for order flow? Whoever you use to place stock market orders is also getting paid the same way. People have a funny idea of what a retail brokerage does. They do not execute orders on exchanges for you; that's a specialized capa…
Interactive Brokers does not sell your order flow
It should be shocking, but it probably is not, that according to the Rule 606 reports mandated by the U.S. Securities and Exchange Commission, no major online broker, with the sole exception of Interactive Brokers, sent more than 5% of its orders to an organized exchange. More than 95% of their orders go to internalizers!
Later: Like, a minute later I read their Rule 606 report, and they do in fact get rebated for sending order flow to dark pools. They also get paid to take institutional orders and trade them against their customers.
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It's never free. You're always paying somewhere. If not explicitly, you're paying via spreads or rich options valuations when you're buying...
Exactly how do you think you're paying it here? Be specific. Later: to be clear, my subtext is that Robinhood customers aren't actually paying anything and are sort of getting a free lunch here. The money Robinhood pockets from your trades isn't available to you in any form, at least until someone starts the brokerage that pays you to trade.
1. RH user wants to buy 1000 shares of XYZ. Offer price is $10.00
2. RH forwards the full order to their execution venue partner. They get paid (assuming SeekingAlpha story is true) $260/$1mm traded, or $2.60.
3. Executor takes the order and immediately sends 900 shares to the market, lifting the offers. Now best offer is $10.10
4. Executor facilitates the tail of the order, 100 shares, at $10.10. So they are short -100 shares here - or they can give a de minimis price improvement (like 10.0985) to meet their contractual obligations.
5. Temporary market impact attenuates and offer mean reverts to $10.05
6. Executor still has risk on their books - but their paper mark-to-market profit is $5.00.
7. Risk can be mitigated by waiting for crossing order or waiting for more favorable offers to close out the short.
So roughly speaking they paid $2.60 to get the order, but made $5 on it...
ProTip: use LIMIT/STOP orders when buying and selling. Sending MARKET orders to Robinhood guarantees you going to get a "worse" price compared to the spot price.
Freetrade[1] is a crowdfunded European alternative to Robinhood. [1] https://freetrade.io/
https://freetrade.io/order-execution/
In the US they would be required to disclose how much they are being compensated for that. I don't know if that is a requirement for the UK so have been unable to magic search term my way to their disclosures.
Earlier quoted context omitted.
Exactly how do you think you're paying it here? Be specific. Later: to be clear, my subtext is that Robinhood customers aren't actually paying anything and are sort of getting a free lunch here. The money Robinhood pockets from your trades isn't available to you in any form, at least until someone starts the brokerage that pays you to trade.
Typical internalizer trade is: 1. RH user wants to buy 1000 shares of XYZ. Offer price is $10.00 2. RH forwards the full order to their execution venue partner. They get paid (assuming SeekingAlpha story is true) $260/$1mm traded, or $2.60. 3. Executor takes the order and immediately sends 900 shares to the market, lifting the offers. Now best offer is $10.10 4. Executor facilitates the tail of the order, 100 shares,…
Earlier quoted context omitted.
I saw that, but that just says they have (in some circumstances) the option to place their orders. I'm unclear why that would necessarily be a good thing, but either way: have they made a clear statement that they're not farming retail orders out to other firms? If they are, they're going to get paid for them.
Their entire business model seems to be extremely transparent[1], and they treat their users as customers, not products. I don't know what they are doing now, but I think that farming retail orders out is not something they would be focused on in the long run. It's more like "mobile-first Interactive Brokers for equity trading". [1] https://freetrade.io/pricing/
Their 'default' order price is a market order that they promise will not clear until after hours or the next day.
https://freetrade.io/order-execution/
This is quite possibly the worst way a retail investor could send in an order.