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

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

#81

Post by physguy1123 »

nodesocket wrote: post #48
colinbartlett wrote: post #43

Earlier quoted context omitted.

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.

> what does a LIMIT/STOP order do for me? For example buying a LIMIT says the highest price I am willing to pay per share is X. So you can be confident you'll get a price at least equal to or below the limit price. > the share price is meaningless to me ??? Confused. Do you like buying high and selling low?

The downside of setting a limit order is that you only get executed when the market moves against you, OR just don't get filled.

For retail order sizes and holding periods, that's probably fine as long as you place orders close to the current price.

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

#82

Post by [deleted] »

anonu wrote: post #35
tptacek wrote: post #27

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,…

[deleted]

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

#83

Post by cinquemb »

physguy1123 wrote: post #81
nodesocket wrote: post #48

Earlier quoted context omitted.

> what does a LIMIT/STOP order do for me? For example buying a LIMIT says the highest price I am willing to pay per share is X. So you can be confident you'll get a price at least equal to or below the limit price. > the share price is meaningless to me ??? Confused. Do you like buying high and selling low?

The downside of setting a limit order is that you only get executed when the market moves against you, OR just don't get filled. For retail order sizes and holding periods, that's probably fine as long as you place orders close to the current price.

There is also the case when no one else wants to sell (buy) and bids (asks) way out number asks (bids), especially on contracts that people are using to cover for their other trades. There's plenty of times where I massaged the price up (or down) to where I wanted it more, and dumped/slurped up contracts (at least confirming by checking the bar once it filled and seeing that the price I got filled at was the highest/lowest price of that bar). Granted, it doesn't happen every time, nor do I count on it.

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

#84

Post by anonu »

thedufer wrote: post #62
anonu wrote: post #35

Earlier quoted context omitted.

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,…

I'm having a hard time believing this is actually a common case. The flow you've laid out almost certainly breaks SEC rules - Credit Suisse's (now closed) retail execution unit was fined for this exact trade less than a month ago ( https://www.sec.gov/news/press-release/2018-224 ). If this is how internalizers make money, they should all be in existential crisis right now. As far as I can tell, they are not.

The SEC cracks down hard on ATSs. But it's rarely for what they do. It's for what they didn't do ... Which is be transparent and disclose. This is the case in the link and something I've observed with all these SEC actions brought against ATSs.

The flow I explained in one way these guys make money. It's certainly exaggerated. At the one place I worked we ran a $0.5bn book of this stuff. You don't always get chances to get out. So risk management is key. Your book turns over every few days.

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

#86

Post by thedufer »

anonu wrote: post #84
thedufer wrote: post #62

Earlier quoted context omitted.

I'm having a hard time believing this is actually a common case. The flow you've laid out almost certainly breaks SEC rules - Credit Suisse's (now closed) retail execution unit was fined for this exact trade less than a month ago ( https://www.sec.gov/news/press-release/2018-224 ). If this is how internalizers make money, they should all be in existential crisis right now. As far as I can tell, they are not.

The SEC cracks down hard on ATSs. But it's rarely for what they do. It's for what they didn't do ... Which is be transparent and disclose. This is the case in the link and something I've observed with all these SEC actions brought against ATSs. The flow I explained in one way these guys make money. It's certainly exaggerated. At the one place I worked we ran a $0.5bn book of this stuff. You don't always get chances t…

Sure, most SEC complaints are for lack of transparency, because they don't have laws against a lot of the stuff they want to stop. But they don't go around prosecuting for lack of transparency of good things. If they fined someone for it, it's probably because they don't approve of the thing they did, which is a good sign they're going to fine others that do it.

And it's not like a lot of internalizers are going around with prospectuses saying "we're gonna purposefully move markets to give your customers worse prices", so the SEC isn't going to have much trouble fining them if they decide to (assuming this is actually happening all the time).

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

#87

Post by vasilipupkin »

physguy1123 wrote: post #80
pg_bot wrote: post #74

Earlier quoted context omitted.

Multiple players along the chain could decide to vertically integrate. Although I used the example of high frequency traders, a better question which I should have asked is why hasn't someone dipped their toes into retail and HFT? It seems like someone would want to grab that land for themselves if it were particularly valuable, which the valuation of Robinhood purports. Considering some guys in that industry made th…

If you're an HFT, you would much rather just pay for the order flow and not deal with all the shit that is retail (government, customers, all that shit). If you're some big retail firm, you're probably run by suits, way to beauracratic to run a difficult high-tech trading team, and any talent you got would get siphoned off to a good trading firm.

different competencies. Acquiring retail customers is very hard and is not something HFT firms have any special competency in.

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

#88

Post by riser9 »

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.

No, they don't. https://freetrade.io/pricing/

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

#89

Post by jbeyer »

physguy1123 wrote: post #75
jbeyer wrote: post #64

Earlier quoted context omitted.

Yea....Timber Hill is owned by Thomas Petterffy, founder of Interactive Brokers, and handles much of the options order flow from IB users. So...IB may not be making money off those trades, but the founder is still profiting from them. Don't get me wrong, as someone who has followed market structure for years, I don't think that IB is doing anything worse than anyone else, but they aren't innocent in this regard.

Timber Hill did not participate in the retail business to avoid conflict of interests with IB. For what it's worth, one can't internalize options orders in the same way one can equity orders, purchased options flow must make it to the market. I'm not familiar with the history of this decision but I suspect it's since options are less liquid and have higher spreads, so internalization would get a much worse deal than…

Quite regularly, I see that my orders are filled at Timber Hill, when there are other participants offering at the same price. We may be quibbling over the definition of "internalization", but that is internalization.

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

#90

Post by tptacek »

riser9 wrote: post #88
tptacek wrote: post #47

Earlier quoted context omitted.

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.

No, they don't. https://freetrade.io/pricing/

Yes, they do? What I misreading about this pricing page?
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