Why ‘Free Trading’ on Robinhood Isn’t Really Free

[rb7]

There's no statistical proof as they don't release the numbers.
But the fact that RH gets paid way more for order flow compared to competition tells you that they screw the customers the most.

PFOF (Payment For Order Flow) doesn't necessarily means that customers get screwed.
Public Customer orders are the real deal for Market Makers. It's where they make the most of their dough. And they don't make money by screwing Public Customer (aka retail). They are making money out of them because most retail traders are losing money. Market Makers make money on the spread, by having quotes sitting and waiting to be lifted, and mostly by retail traders.

 

[rb7]

Of course not.

Nobody can stay in business "giving everything away for free". They gotta make money somewhere.... spreads, mostly.

RH don't have anything to do with the spreads.
The business model is based on the PFOF (Payment For Order Flow). You can't imagine how much money they can do out of it.

 

[Scataphagos]

RH don't have anything to do with the spreads.
The business model is based on the PFOF (Payment For Order Flow). You can't imagine how much money they can do out of it.

I don't know about PFOF, but there have been several brokerage places who claim "commission free" trading... and they usually make theirs from wider spreads.

 

[Scataphagos]

Look if your investing and holding....why bother with small slippage.. it's what makes a market different perspectives, time horizons etc...

Absolutely.

If commissions dramatically impact trading results, the player is "fishin' in a dry hole".

 

[rb7]

I don't know about PFOF, but there have been several brokerage places who claim "commission free" trading... and they usually make theirs from wider spreads.

I don't know in which market brokerage firms make spreads (except Forex).
But in North America, for Futures, Options and stocks, they don't.

Retail flow is what all pros are starving at.
You'd have to be on the other side of the fence to believe it...

 

[d08]

PFOF (Payment For Order Flow) doesn't necessarily means that customers get screwed.
Public Customer orders are the real deal for Market Makers. It's where they make the most of their dough. And they don't make money by screwing Public Customer (aka retail). They are making money out of them because most retail traders are losing money. Market Makers make money on the spread, by having quotes sitting and waiting to be lifted, and mostly by retail traders.

You don't pay more for something if you're making same or less off of it. It's basic business logic. There's only one reason RH flow would sell for more and both sides cannot win here, it's obviously that the customer is the product.

 

[Scataphagos]

You'd have to be on the other side of the fence to believe it...

That's me. "Wrong side of the fence" yet again.

 

[rb7]

You don't pay more for something if you're making same or less off of it. It's basic business logic. There's only one reason RH flow would sell for more and both sides cannot win here, it's obviously that the customer is the product.

Sorry, but it doesn't work like that.
Retail order flow is pure gold for MM and pros. Not because they can get it at a cheaper price, but because retail orders are mostly on the wrong side of the market.

You know, many exchanges don't charge transaction fee for Public Customer orders (retail). Why? Because their Market Makers love them, and if they love them, they will quote more, and if they quote more, the exchanges will charge them more (transaction fee). It's like bars who give free drinks to women. Why do they do that? It doesn't make sense isn't?

 

[zdreg]

Retail order flow is pure gold for MM and pros. Not because they can get it at a cheaper price, but because retail orders are mostly on the wrong side of the market.

Richard Ney must be smiling down at your remark from the great casino in the sky. he wrote books decades ago on how the specialist and marker makers were forced to make moolah while fulfilling their function to maintain orderly markets. the public would sell in panic at bottoms. the market makers and specialists would pick up stock at bargain prices. at euphoric times they would go naked short, being exempt from rules on locates to borrow stock to short.

history doesn't quite repeat itself but it sure does rhyme.

 

[newwurldmn]

You don't pay more for something if you're making same or less off of it. It's basic business logic. There's only one reason RH flow would sell for more and both sides cannot win here, it's obviously that the customer is the product.

Nbbo is 1 at 1.05 (one tick wide) Retail comes in to pay 1.05. The market maker who bought the order flow sells at 1.05. If that market maker paid a penny for that order then he makes 1.5 cents and the brokerage house and the customer split the penny in some way.

Brokerage is still supposed to ensure best fill possible, but who manages that is where the pfof comes from.