What is the catch with Robinhood?

bone said:
The catch is they make profits by selling all the order flow to Hedge Funds and Wall Street - which means that Robinhood customers get really lousy fills. And it adds up if you trade with any frequency. Nothing is free.

Same for all deep discount or free stock brokers.

And that's why Primer Brokerage is growing at an 8 percent annual rate and drives revenues of $30B per year ++ at Investment Banks. Institutional investors and hedge fund clients know that shitty fills add up.
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Do you know of Tastyworks sell your order flow too? They're cheap and they're just some random broker like all the rest.
 
RGLD said:
Can yo give me an example of a bad fill? Let's say I have a limit of $1 credit. You're saying it could be filled at something else?
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You don’t have access to the National Best Bid/Best offer. Your order gets routed to a market maker who keeps their spreads wider than the market. For you to get a fill, the market maker would be quoting, say $.95 to $1.00. You effectively bought the offer. If you immediately wanted to sell your position, you would only receive $.95. If you put in a sell limit for $1.00, you would only recieve a fill if their market was $1.00 to $1.05, for example. You effectively sold on the bid.

I have acess to the inside market and most of the time I can split the Bid/Offer plus 1 tick improvement on a small order for an instant fill. Continuing the example above, I would likely be able to buy at $.98 and immediately turn around and sell at .$97, for a $.01 difference. In your case, it would cost you $.05. There is no free, even if it is not obvious how things are monetized.
 
I trade on a monthly basis anyway, so that's not too bad. Some spreads on amazon are over $10 dollars though. That's 1k going in and out without the market moving for 100 shares.
 
When you're taking in several hundred million per year selling order flow - well, paying small fines is no big deal.

FINRA fined Robinhood in December 2019 for “best execution violations related to its customers’ equity orders and related supervisory failures”. Robinhood paid the $1.25 million fine without admitting or denying wrongdoing.
 
bone said:
Robinhood has taken in $271M in fees from payment for order flow in Q1-20 and Q2-20. This was not an altruistic endeavor.

Orders are not being routed for the sake of the investor's best interest. Orders are being routed for the gain and financial benefit of the Market Makers who are paying for the order flow.
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payment for order flow requires that the market maker matches the nbbo. firms pay for order flow so they can be at the front of the queue. collecting tolls.

imagine a security where bid/offer never changes and has even volume for buys and sells. it is clear that firms would pay for that flow ...collecting the spread.
 
BeautifulStranger said:
You don’t have access to the National Best Bid/Best offer. Your order gets routed to a market maker who keeps their spreads wider than the market. For you to get a fill, the market maker would be quoting, say $.95 to $1.00. You effectively bought the offer. If you immediately wanted to sell your position, you would only receive $.95. If you put in a sell limit for $1.00, you would only recieve a fill if their market was $1.00 to $1.05, for example. You effectively sold on the bid.

I have acess to the inside market and most of the time I can split the Bid/Offer plus 1 tick improvement on a small order for an instant fill. Continuing the example above, I would likely be able to buy at $.98 and immediately turn around and sell at .$97, for a $.01 difference. In your case, it would cost you $.05. There is no free, even if it is not obvious how things are monetized.
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so are you saying limit order sent to a marketmaker are not shown? much like a pit filling broker's deck from years long gone
 
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