Robinhood Is Making Even More Trades Free, Taking on the Options Market

[sle]

PFOF is the real deal. Retail order flow has a great value. As long a the retail trader is getting the right price at the right time, and the broker (RH in this case) is getting paid for the PFOF, then everybody win.

As I said, the negative selection is also a real thing. This said, a retail trader might not notice it amongst other noise in his book, but if you do anything remotely systematic it will add up. The real question is which cost is greater, commissions or suboptimal execution.

 

[rb7]

As I said, the negative selection is also a real thing. This said, a retail trader might not notice it amongst other noise in his book, but if you do anything remotely systematic it will add up. The real question is which cost is greater, commissions or suboptimal execution.

I don't think PFOF leads to suboptimal execution. In general, it's mostly transparent for the retail trader. A lots of retail brokers are using PFOF (one way of another), more than what retail traders think.

 

[FSU]

A Market order directed to BOX and a Market order directed to CBOE will result with the same fills due to the NBBO constraint. You cannot have a better fill at one exchange. All US option exchanges must respect the NBBO. The only difference is you might receive multiple partial fills.

This is just not true. NBBO will prevent a trade through if one exchange is quoting a better price then another, but if they are both quoting a wide price, you will generally see better fills at the "main" exchanges rather then the 'crossing" exchanges in my experience.

 

[rb7]

This is just not true. NBBO will prevent a trade through if one exchange is quoting a better price then another, but if they are both quoting a wide price, you will generally see better fills at the "main" exchanges rather then the 'crossing" exchanges in my experience.

If the NBBO has a wide bid-offer spread, then whatever option exchange you'll trade at, you'll get the same fill price. If you send your order at BOX and BOX is not at NBBO but CBOE is, then your order will be routed to CBOE by BOX and you'll get the CBOE price (NBBO). You simply can't get a worst price at one exchange, meaning outside the NBBO.

 

[FSU]

If the NBBO has a wide bid-offer spread, then whatever option exchange you'll trade at, you'll get the same fill price. If you send your order at BOX and BOX is not at NBBO but CBOE is, then your order will be routed to CBOE by BOX and you'll get the CBOE price (NBBO). You simply can't get a worst price at one exchange, meaning outside the NBBO.

Maybe you're misunderstanding me. Say a market is 1 bid at 2 on the CBOE,ISE, ARCA, BOX and some others. If you send a market order to sell at the CBOE there is a good chance you will be filled better than 1. If you send a market order to the BOX, your fill most likely will not be as well. This has nothing to do with NBBO.

 

[rb7]

Maybe you're misunderstanding me. Say a market is 1 bid at 2 on the CBOE,ISE, ARCA, BOX and some others. If you send a market order to sell at the CBOE there is a good chance you will be filled better than 1. If you send a market order to the BOX, your fill most likely will not be as well. This has nothing to do with NBBO.

Ok, I got you.
You're referring to internalization. All US option exchanges support one form of that. Call it PIP, auction, QCC, Customer Cross, PIM, etc.
It's not up to the exchange but to the broker. Using your example, if your broker internalizes your order, it doesn't really matter which exchange is receiving it. For the retail trader, it doesn't make any difference, for the broker it does (cost of trading at each exchange is different).

 

[caacapital]

I'll be using them for options I have no fill issues with their stocks although i dont see my orders on the DOM ever. I've been filled and have withdrawn profits on orders so I dont think its that big of a deal yet at least.

 

[sss12]

I'll be using them for options I have no fill issues with their stocks although i dont see my orders on the DOM ever. I've been filled and have withdrawn profits on orders so I dont think its that big of a deal yet at least.

"Don't see orders"....there is the issue...what is it indicating ?.....

 

[sle]

I don't think PFOF leads to suboptimal execution. In general, it's mostly transparent for the retail trader. A lots of retail brokers are using PFOF (one way of another), more than what retail traders think.

Well, but it does in various forms - not getting an improvement over the NBBO which you could have gotten on the exchange, getting partial micro-fills only because the OMM gets to pull the order etc. It’s much more statistical so it’s not as easily apparent but it will add up across a large enough sample.

 

[ajacobson]

OMM can't pull the order on most exchanges without a genuine tech hiccup or a fine from market reg... Even if they did it could ship to another exchange. You're also forgetting about the proliferation of dark liquidity on preferenced orders. Retail option marking making is a cartel established to service retail and retail alone. Price improvement does occur - look at Box's monthly report and every exchange offers it. Ideally, if I'm an e-commerce broker I cut my routing deal to handle all of these issues. Does PFOF or maker/taker fees hurt market quality - no question as it's built into the b/a spread, but there is no haven except for the monopoly product which mostly have worse b/a spreads. Go figure - must be a smaller cartel.
The friction in commission has declined for some - market quality has suffered over. Again this is one of the reason much of the institutional liquidity has gone upstairs.