What is the catch with Robinhood?

[bone]

I'm a futures guy, not a stocks guy so this is out of my wheelhouse. The last time I was a party to something close to a prime brokerage account was in the early '00's at a HF.

You would have to be very high net worth to be an individual with a prime brokerage account.

Prime brokerages generally serve Pension Funds, Insurance Companies, Sovereign Wealth Funds, a few ridiculous Family Funds, College Endowments - those kinds of very high asset Institutional Investors. They would also service your larger Hedge Funds and Private Equity Funds.

They are bespoke omnibus accounts, and they will offer custom margin offsets which is amazing. For example, you could buy 500K share blocks of equities out of a dark pool and hedge them against ES and NQ futures, that type of thing. And they would calculate a margin offset for you. Prime accounts will have access to all sorts of OTC products and swaps and derivatives. You could buy a tanker of physical oil and sell it on the bilateral physical Singapore Swaps market. If you ever wanted to trade electric transmission rights or tanker ship leases - this is your account. Interest Rate Swaptions? Yep.

who can use prime broker？ my impression is it is for institutions. And which prime broker accept individuals?

Is there a big market of people who choose between a prime broker and a discount broker?

 

[bone]

Apparently all deep discount or free brokers sell order flow. That's how they make money. They're not making money from fees or commissions so it has to come from somewhere. And apparently it's lucrative.

Do you know of Tastyworks sell your order flow too? They're cheap and they're just some random broker like all the rest.

 

[realtrades]

I am loving these people who are signing up for RH accounts, a record 3 million accounts opened in the 1st quarter, they setup free chat rooms, tell each other when to get in and out of positions, HFTs pickup on this, the bids/offers start getting it, I love shorting the penny junk knowing that on the other side you got these noobs that are being gamed by the HFTs, I like to get on board before the panic selling starts and cover into it, hopefully they all don't blow up their accounts anytime soon, and they bring in other suckers, telling them how easy it is, please tell me RH is giving people bonus for referring fresh suckers??

 

[bone]

If you're happy, then fine. Ignorance is bliss.

Here are the Company 606 reports for PFOF totals for 2020 Q1 and Q2. Equities and Options.

TD Ameritrade: Equity Q1: $72,782,936 Equity Q2: $144,219,349

Options Q1: $129,597,189 Options Q2: $179,991,996

Total Q1: $202,380,125 Q2: $324,211,345


E*TRADE: Equity Q1: $29,822,204 Equity Q2: $50,210,044

Options Q1: $49,829,545 Options Q2: $60,117,332

Total Q1: $79,651,749 Q2: $110,327,376


Schwab: Equity Q1: $25,447,153 Equity Q2: $32,396,842

Options Q1: $28,517,592 Options Q2: $33,745,172

Total Q1: $53,964,745 Q2: $66,142,014


Robinhood: Equity Q1: $31,116,950 Equity Q2: $69,116,307

Options Q1: $59,802,125 Options Q2: $111,148,089

Total Q1: $90,919,076 Q2: $180,264,395

 

[Robert Morse]

It seems there are subjective definitions of a Prime Broker and a Prime Brokerage relationship. These are mine. A Prime Broker is a clearing firm that offers clearing and custody of a Prime Brokerage relationship. A Prime Brokerage relationship in one where you custody and clear trading at your Prime Broker but also trade way at other execution brokers and clearing firms. Finra states "Prime brokerage and introduced accounts where trades may be executed away from the clearing firm must maintain $500,000 in equity." We offer this service through Wedbush Securities but require more than $500,000. Most brokers require more. We also offer execution-only services to accounts that Prime away from us. I would say the most typical reasons to trade away and Prime with us are for access to IPOs. The most typical reason to Prime away and execute through us is for access to our software, routing, service and low commission rates.

Is there a big market of people who choose between a prime broker and a discount broker?

 

[newwurldmn]

I'm a futures guy, not a stocks guy so this is out of my wheelhouse. The last time I was a party to something close to a prime brokerage account was in the early '00's at a HF.

You would have to be very high net worth to be an individual with a prime brokerage account.

Prime brokerages generally serve Pension Funds, Insurance Companies, Sovereign Wealth Funds, a few ridiculous Family Funds, College Endowments - those kinds of very high asset Institutional Investors. They would also service your larger Hedge Funds and Private Equity Funds.

They are bespoke omnibus accounts, and they will offer custom margin offsets which is amazing. For example, you could buy 500K share blocks of equities out of a dark pool and hedge them against ES and NQ futures, that type of thing. And they would calculate a margin offset for you. Prime accounts will have access to all sorts of OTC products and swaps and derivatives. You could buy a tanker of physical oil and sell it on the bilateral physical Singapore Swaps market. If you ever wanted to trade electric transmission rights or tanker ship leases - this is your account. Interest Rate Swaptions? Yep.

that was going to be my point. What does growth in prime brokerage have to do with discount brokers selling order flow. Your post made it sound like people were flocking to prime brokers for better execution than the payment for order flow execution at discount brokers.

 

[RGLD]

Apparently all deep discount or free brokers sell order flow. That's how they make money. They're not making money from fees or commissions so it has to come from somewhere. And apparently it's lucrative.

meh, than that means nothing to me. I can't afford a real broker and I've been using retail brokers and getting front-runned ever since I started trading.

 

[bone]

My understanding is that IB Pro customers still pay to trade and their orders will routed to the market where they will get the best execution, instead of being sold.

IB Discount customers have their order flow sold to MM's.

Yes, it’s totally feee including $0 commissions on options. But features are limited, like no shorting stocks and no portfolio margin, so they’ll close your options automatically when you’re at risk of being assigned. Also no options on indexes. But they support trading crypto that some people are into as well.
My wife uses Robinhood and sometimes I tell her what options/spreads/combos to buy so we enter the same orders. Quite often she actually gets better fills than I can get at Interactive Brokers. Sometimes I yell “how did you get that order through when I’m still waiting?!”
“Better” means faster or she gets filled at all, while I don’t. Other times she doesn’t get fills while I do, but not that often.
All the negative hype is form people who never used Robinhood and make assumptions.
Yes, Robinhood does sell order flow to market makers, but so do most brokers nowadays. Market makers cannot give you totally invalid price, especially on limit orders. They may delay your fills till the underlying moves in unfavorable direction, but I haven’t noticed much of that. I’m not sure if some orders are filled internally at Robinhood against other users, but MM’s could do that just as well on their end. Robinhood’s order flow may also help MMs achieve better efficiency, which can go back to customers.
Generally it’s difficult to experience problems with Robinhood in terms of getting orders filled, but they do have other, technical issues, and no customer service to get in touch with.

 

[newwurldmn]

In my opinion payment for order flow is okay. My hard commissions are lower and I want market makers to lump me in the stupid category.

 

[bone]

Prime brokerage on Wall Street has been growing at 8 percent per year. Them and us are two different species of people entirely.

that was going to be my point. What does growth in prime brokerage have to do with discount brokers selling order flow. Your post made it sound like people were flocking to prime brokers for better execution than the payment for order flow execution at discount brokers.