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Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

bloomberg.com

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Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#51

Post by anonu »

tptacek wrote: post #45
anonu wrote: post #42

Earlier quoted context omitted.

So, first off, I am not saying internalizers are all evil and that pfof is bad. That $2.40 your retail trade earned the internalizer is the price you pay for convenience and immediacy. You let someone else handle the order and they do what they want with it - within certain guidelines. You could have saved the hypothetical $2.40 had you traded differently, albeit slower, and caused less market impact with your order.…

I don't understand the outline of your argument. If what you're saying is true, then you can non-hypothetically save that $2.40 by... trading slower and with less impact on the market. This is why I asked for specificity. Yes, we agree, internalizers pay for order flow because they can make money on it. The question is: can you make that money on your own order flow, or is the allocation of orders to internalizers Pa…

Internalizers want the entire order. If RH splits a order across multiple internalizers they will not be happy. So RH allocates in a Pareto-optimal way. As the order creator, you cannot earn that $2.40, you can only save by getting a better price.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#52

Post by btilly »

anonu wrote: post #42
tptacek wrote: post #38

Earlier quoted context omitted.

That's how you're saying the internalizer made money on it. Obviously, they make money on the order flow. The question is how they cost you anything. What could you have done differently to capture the $2.40 in hypothetical profits here?

So, first off, I am not saying internalizers are all evil and that pfof is bad. That $2.40 your retail trade earned the internalizer is the price you pay for convenience and immediacy. You let someone else handle the order and they do what they want with it - within certain guidelines. You could have saved the hypothetical $2.40 had you traded differently, albeit slower, and caused less market impact with your order.…

There is no market out there that lets you trade slower in return for providing a smaller margin for market makers.

It is possible to build one, but it would look so different from existing markets that it would be an uphill battle to get people to adopt it.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#53

Post by tbenst »

pazimzadeh wrote: post #50

I'm not sure I completely understand this article, but I'd like to take this opportunity to rant about my recent experience using Robinhood. Two weeks ago I noticed that Tesla stock dropped significantly after the SEC's investigation into Elon Musk's "funding secured" tweet led to Elon being ousted as chairman of the board. I thought the stock would recover from this, so I placed a market price order for TSLA shares…

I think this is because when you do a “market order” on Robinhood it’s actually placed as a limit order 5% above the price. Just set your own limit order next time

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#54

Post by thebird »

pazimzadeh wrote: post #50

I'm not sure I completely understand this article, but I'd like to take this opportunity to rant about my recent experience using Robinhood. Two weeks ago I noticed that Tesla stock dropped significantly after the SEC's investigation into Elon Musk's "funding secured" tweet led to Elon being ousted as chairman of the board. I thought the stock would recover from this, so I placed a market price order for TSLA shares…

It was obvious to many people that the stock price would rebound significantly after Musk settled with the SEC, so the stock had already effectively increased in price before market open. Robinhood couldn't find anyone willing to sell you shares at the market close price Monday morning because there were none to be had.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#55

Post by krn »

tptacek wrote: post #47
krn wrote: post #44

Earlier quoted context omitted.

> Their 'default' order price is a market order that they promise will not clear until after hours or the next day. Isn't this only true for the non-paying users, who are not subscribers of their premium plan? That's probably their entire (freemium) business model. It's the same with Revolut: free users might lose more money in foreign exchange and withdrawal fees, which pushes them to upgrade[1]. [1] https://www.rev…

Even if you pay them $10/mo (whether you trade or don't, and keeping in mind that most people shouldn't be trading most months!), they still charge you for "instant" orders (the kind they don't delay purposely) in the one market they actually execute orders in. Robinhood seems like a better deal.

That's a good point. It's hard to compare a crowdfunded company with a one burning through more than 500 mln USD in VC funding. But I see no reason why people shouldn't be increasing their passive portfolios every month if they can. And with many brokers, $10 is around a minimum commission for a single trade.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#56

Post by codeplea »

pazimzadeh wrote: post #50

I'm not sure I completely understand this article, but I'd like to take this opportunity to rant about my recent experience using Robinhood. Two weeks ago I noticed that Tesla stock dropped significantly after the SEC's investigation into Elon Musk's "funding secured" tweet led to Elon being ousted as chairman of the board. I thought the stock would recover from this, so I placed a market price order for TSLA shares…

I think Robinhood implements market orders as limit %5 above/below market. You should be able to enter a limit order at your own max price, and it would've executed.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#57

Post by this_user »

pazimzadeh wrote: post #50

I'm not sure I completely understand this article, but I'd like to take this opportunity to rant about my recent experience using Robinhood. Two weeks ago I noticed that Tesla stock dropped significantly after the SEC's investigation into Elon Musk's "funding secured" tweet led to Elon being ousted as chairman of the board. I thought the stock would recover from this, so I placed a market price order for TSLA shares…

You sent a market order while the market was actually closed, so it could not be executed at the time. RH was protecting you from getting a fill far away from the last price, because the stock gapped up massively that Monday. 264.77 was the close on Friday, and 305.77 was the open on Monday. You should be thanking them, because otherwise your position would be around $45 under water by now. Never use market orders outside of regular trading hours; you have no idea where you are going to get filled.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#59

Post by mikestew »

colinbartlett wrote: post #43
nodesocket wrote: post #32

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.

Does this apply to an ordinary low-level retirement investor like me? If I am buying, let's say $500 a week, in some fund as part of my IRA, what does a LIMIT/STOP order do for me? I'm buying it no matter what, the share price is meaningless to me, I will just get more or less shares.

I don’t even know that you can put a limit order on mutual fund purchases. My gut tends to doubt it, but I’m too lazy to go try.

Regardless, I’ve traded for decades and on high-volume stocks (which are the ones you’re likely to trade), putting limit orders in is a waste of effort. For some folks, it’s important to save a few cents. For you, not so much. Different story on penny stock or < 100K/day in volume, but if you’re buying AAPL just put a market order in.

Re: Robinhood Gets Almost Half Its Revenue from Bargain with High-Speed Traders

#60

Post by swampthing »

At the beginning of the article, the authors cite 3 anonymous sources:

> ... according to three people with knowledge of the matter, who asked not to be identified because the details are private...

Then, the end of the article mentions 3 VCs:

> Two venture capitalists, speaking on condition of anonymity because the discussions were private, expressed concern that Robinhood's ties to high-frequency traders might undermine its image and stymie expansion plans. A third said it was the reason he didn't invest.

I wonder if this article is the product of some VC sour grapes.

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