Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

SEC charges Robinhood $65M for misleading customers about revenue sources

sec.gov

Post reply on HN
Print view View original

291–300 of 318 posts

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#291

Post by tptacek »

arcticbull wrote: post #286
fakedang wrote: post #274

Earlier quoted context omitted.

Why IBKR over, say Schwab or Vanguard?

Depends on the size of your account and how you trade, and what you're looking to get out of it. If you have an account value of over $110,000 IBKR will offer you the industry's lowest margin rates (as low as 0.75%, tax deductible) and very competitive order pricing, without PFOF. Of course with a substantial account you can ask any of them to match IBKR margin rates and they likely will. I sell a lot of margin-secur…

Just to be annoying here:

You keep saying that a benefit of IBKR Pro is "no PFOF". That's true --- IBKR Pro is I think the only online retail brokerage that doesn't do that.

To my understanding, the only meaningful benefit to "no PFOF" is potentially better price improvement. Which is to say, if you place orders with Ameritrade, which is doing PFOF, you're going to get price improvement over NBBO, but with IBKR Pro, which doesn't, you might get even better price improvement.

In the IBKR Pro case, that's true: according to their advertised price improvement stats, you will get 1/3c of improved price improvement per share as a consequence of trading through them compared to the industry average. Your call whether a third of a penny is meaningful to you.

But in the general case, it might not necessarily be true that "no PFOF" is a benefit; it's all a question of the fees you pay and the price improvement you get with a given brokerage's routing, right?

Am I off here? My sort of baseline belief is that firms like Citadel and Virtu are in fact very good at executing retail orders, and that it'd be weird to have a goal of making sure your dumb retail orders were routed around them.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#292

Post by ajhurliman »

smabie wrote: post #251
legutierr wrote: post #248

Earlier quoted context omitted.

What's the specific risk when handling these trades? Is it that the quoted price should be higher, given that there is more demand than there seems to be? If that's the risk, though, it's not a risk of loosing money you have, but rather a risk of not making as much money as you could by selling at a higher price, right?

No it's the risk of losing money. So let's say I'm quoting a tight spread and a small buy order comes in and I get hit. No problem. I don't adjust my quotes because that small of order will not impact the price. But now more orders are coming in from the same institution, buying more and more (basically one big meta-order broken up into small orders so as to conceal intent). If I don't realize that all of these small…

So if someone's buying a stock, the market maker actually takes a short position to make it available to the buyer? I was under the impression that market makers are just connecting market and limit orders with each other, is that not the case?

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#293

Post by toptick »

The fact that Robinhood routed to these wholesalers was always easy to see... it’s in their SEC rule 606 reports. This info was buried deep on their site, but you can alway use a search engine to find it. You just had to know where to look.

They took payment for order flow (PFOF). So do many of the cheap brokerages on the street.

To me, the funny part is that the old school wall st institutions Robinhood is supposedly disrupting do not take payment for order flow. Morgan Stanley and Merrill will not take it. They go for the best execution quality always.

Although, I do not agree that this practice is necessarily illegal... there’s a simple argument to make: by taking payment over price improvement the broker is able to provide a lower commission. The all in price could still be better for the customer. Robinhood is not skilled enough to navigate this issue though.

From a guy that used to run best ex at a wall st firm...

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#294

Post by [deleted] »

smabie wrote: post #251
legutierr wrote: post #248

Earlier quoted context omitted.

What's the specific risk when handling these trades? Is it that the quoted price should be higher, given that there is more demand than there seems to be? If that's the risk, though, it's not a risk of loosing money you have, but rather a risk of not making as much money as you could by selling at a higher price, right?

No it's the risk of losing money. So let's say I'm quoting a tight spread and a small buy order comes in and I get hit. No problem. I don't adjust my quotes because that small of order will not impact the price. But now more orders are coming in from the same institution, buying more and more (basically one big meta-order broken up into small orders so as to conceal intent). If I don't realize that all of these small…

[deleted]

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#295

Post by smabie »

ajhurliman wrote: post #292
smabie wrote: post #251

Earlier quoted context omitted.

No it's the risk of losing money. So let's say I'm quoting a tight spread and a small buy order comes in and I get hit. No problem. I don't adjust my quotes because that small of order will not impact the price. But now more orders are coming in from the same institution, buying more and more (basically one big meta-order broken up into small orders so as to conceal intent). If I don't realize that all of these small…

So if someone's buying a stock, the market maker actually takes a short position to make it available to the buyer? I was under the impression that market makers are just connecting market and limit orders with each other, is that not the case?

It's really complicated and I don't want to go into too much detail, but no, a market maker isn't "connecting" limit orders. A market maker is a market participant, just like me or you (well, sort of). They buy things and sell things, they don't have magical powers.

People get confused, but most hft firms utilize market making strategies. A market maker is just someone who puts limit orders on the book (making) vs taking liquidity off of the book (takeout). Anyone can be a market maker, and many firms do both market making and taking.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#296

Post by arcticbull »

tptacek wrote: post #291
arcticbull wrote: post #286

Earlier quoted context omitted.

Depends on the size of your account and how you trade, and what you're looking to get out of it. If you have an account value of over $110,000 IBKR will offer you the industry's lowest margin rates (as low as 0.75%, tax deductible) and very competitive order pricing, without PFOF. Of course with a substantial account you can ask any of them to match IBKR margin rates and they likely will. I sell a lot of margin-secur…

Just to be annoying here: You keep saying that a benefit of IBKR Pro is "no PFOF". That's true --- IBKR Pro is I think the only online retail brokerage that doesn't do that. To my understanding, the only meaningful benefit to "no PFOF" is potentially better price improvement. Which is to say, if you place orders with Ameritrade, which is doing PFOF, you're going to get price improvement over NBBO, but with IBKR Pro,…

Not annoying at all, I appreciate you pushing for clarity. I believe you are correct, I’ll do some research too.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#297

Post by kevstev »

arcticbull wrote: post #286
fakedang wrote: post #274

Earlier quoted context omitted.

Why IBKR over, say Schwab or Vanguard?

Depends on the size of your account and how you trade, and what you're looking to get out of it. If you have an account value of over $110,000 IBKR will offer you the industry's lowest margin rates (as low as 0.75%, tax deductible) and very competitive order pricing, without PFOF. Of course with a substantial account you can ask any of them to match IBKR margin rates and they likely will. I sell a lot of margin-secur…

I bought a house last year and long story short ended up not selling my condo, meaning to close I needed to not sell a chunk of my investments. Problem is, many had significant capital gains. I ended up just taking a margin loan for a blended rate of about 1%. I avoided capital gains, the margin interest is deductible, and my tech heavy portfolio has increased substantially in absolute terms and on a percentage return basis is crushing it.

I was comfortable with margin/leverage, for a few years I was very successful with a strategy of buying blue chip dividend stocks on margin and essentially running a credit spread trade- it's not for everyone.

But IB is outstanding compared to other brokers around things like this- it really excel for the "prosumer" niche.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#298

Post by pclmulqdq »

tptacek wrote: post #291
arcticbull wrote: post #286

Earlier quoted context omitted.

Depends on the size of your account and how you trade, and what you're looking to get out of it. If you have an account value of over $110,000 IBKR will offer you the industry's lowest margin rates (as low as 0.75%, tax deductible) and very competitive order pricing, without PFOF. Of course with a substantial account you can ask any of them to match IBKR margin rates and they likely will. I sell a lot of margin-secur…

Just to be annoying here: You keep saying that a benefit of IBKR Pro is "no PFOF". That's true --- IBKR Pro is I think the only online retail brokerage that doesn't do that. To my understanding, the only meaningful benefit to "no PFOF" is potentially better price improvement. Which is to say, if you place orders with Ameritrade, which is doing PFOF, you're going to get price improvement over NBBO, but with IBKR Pro,…

IBKR does some of its trading off-exchange like the PFOF types, but they do it in-house, not on a paid-for basis. If you see "SMART" in the routing of an order on IBKR pro, often that order went to one of their darkpools or was filled by them off-exchange (at a price better than the NBBO).

The price improvement per share also sometimes comes from exchange rebates that they pass through to customers.

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#299

Post by idlewords »

tptacek wrote: post #258
donohoe wrote: post #53

I feel that if a company is paying a fine of 1M or more, someone should also be going to jail - otherwise there is not going to be any meaningful accountability.

Get that law passed, bearing in mind that half the country is represented by a political party that is opposed in principle to financial regulations of almost any sort.

And the other half by the Republicans!

Re: SEC charges Robinhood $65M for misleading customers about revenue sources

#300

Post by tptacek »

idlewords wrote: post #299
tptacek wrote: post #258

Earlier quoted context omitted.

Get that law passed, bearing in mind that half the country is represented by a political party that is opposed in principle to financial regulations of almost any sort.

And the other half by the Republicans!

I am dead.
Post reply on HN