? please explain the numbers. it seems that that there is a .05 spread.
Why ‘Free Trading’ on Robinhood Isn’t Really Free
- Thread starter Altavest_Erik
- Start date
Lol...
There is so much happening behind the scene...
So many different type of market participants, each trying to make money their own way.
There is so much more than the retail world!
The cool thing is, that right now Joe public realises how much of a con job Payment For Orderflow is. But you know folks, it's been aroud forever and you can read Rule 606 Reports on every brokers website.
No biggie. The even cooler thing is that nobody even understands in how many other situations he gets screwed when going through a one stop shop broker like ToS, RH or any other of those "nice software" houses.
You really think that couple of cents per order really add up to so much that they can pay that horde of programmers that keeps adding bells and whistles to your favourite screen spaghetti frontend?
Think again.
No biggie. The even cooler thing is that nobody even understands in how many other situations he gets screwed when going through a one stop shop broker like ToS, RH or any other of those "nice software" houses.
You really think that couple of cents per order really add up to so much that they can pay that horde of programmers that keeps adding bells and whistles to your favourite screen spaghetti frontend?
Think again.
"Let's do some quick math. Assume the average stock traded has a share price of $50. It takes 20,000 shares traded at $50 for $1,000,000 in volume, for which E*TRADE makes $22 per $1,000,000 traded, which sounds like a small number until you realize they cleared $47,000,000 last quarter from this. But off an identical $1,000,000 in volume, Robinhood gets paid $260 from the same HFT firms. If Robinhood did as much trade volume as E*TRADE, they would theoretically be making close to $500 million per quarter in payments from HFT firms," Kane said."
Remember the number USD 260. Go to your yearly statement from Interactive Brokers. Take commissions and divide by the gross value of stocks traded - sales plus purchases - expressed in USD million. Compare that figure to the USD 260. Note that HFTs have to make at least an additional USD 260 from buying orders from Robinhood just to break even.
It is thus quite evident that you get screwed trading "for free" through Robinhood. What is less evident is the exact way you get screwed.
What do HTFs do exactly with the orders they buy from Robinhood?
Remember the number USD 260. Go to your yearly statement from Interactive Brokers. Take commissions and divide by the gross value of stocks traded - sales plus purchases - expressed in USD million. Compare that figure to the USD 260. Note that HFTs have to make at least an additional USD 260 from buying orders from Robinhood just to break even.
It is thus quite evident that you get screwed trading "for free" through Robinhood. What is less evident is the exact way you get screwed.
What do HTFs do exactly with the orders they buy from Robinhood?
Same fu**king "bait & switch" model although this one is "trap, loot & run".
In 2000s I got scammed by a free internet provider to buy their software service for $169 and get free internet for life for having ads every now and then on screen if not continuous.
It ran well for 3 months with ad bar on bottom or top screen even 3-4 minutes. Then suddenly it stopped with notification that company lost this or that contract and has gone under.........i.e. no refunds and bye bye.
Even if they netted $50 per buyer, for 10,000 they took $500K for 3-4 months of work.
Same as RH. Only now folks are finding out that they give inferior fills and make money from order flow. They have made enough by now, so if model goes totally bust, they will still come out ahead by 10s of millions.
In 2000s I got scammed by a free internet provider to buy their software service for $169 and get free internet for life for having ads every now and then on screen if not continuous.
It ran well for 3 months with ad bar on bottom or top screen even 3-4 minutes. Then suddenly it stopped with notification that company lost this or that contract and has gone under.........i.e. no refunds and bye bye.
Even if they netted $50 per buyer, for 10,000 they took $500K for 3-4 months of work.
Same as RH. Only now folks are finding out that they give inferior fills and make money from order flow. They have made enough by now, so if model goes totally bust, they will still come out ahead by 10s of millions.
you are talking about millions. these people are thinking billions
Robinhood Financial LLC is set to be valued at about $5.6 billion in a new funding round, according to people familiar with the matter, a fourfold increase in just one year that reflects the stock-trading app’s soaring popularity among millennials.
The Silicon Valley startup is in the final stages of securing around $350 million from a group of investors led by Russian firm DST Global, according to the people familiar with the fundraising.
DST led Robinhood’s last funding round a year ago, which valued the company at $1.3 billion.
The exploding valuation puts Robinhood among the top 15 highest-valued private technology companies in the U.S., representing an ambitious bet by investors that the firm can capture a sizable piece of the financial-trading market.
http://blog.robinhood.com/news/2018/5/9/robinhood-raises-363-million-to-expand-product-lineup
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That sounds interesting, so are you saying ES has less slippage? What does slippage mean here and how do you measure it?
IIRC and correct me if I'm wrong, SPY typically has a 1c spread during market hours which as a percentage is smaller than 1 tick on ES. If you get price improvement on SPY then the real spread will be even smaller.
SPY: 0.01/270 = 0.37bp
ES: 12.5/(50*2700) = 0.93bp
Buy 1 ES @ $2700.125... $135,006.25
Buy 500 SPY@ $270.01... $135,005.00
But there is more slippage in the SPY...
1. The time it takes to execute... that's not just "exchange" time.. it's also the time it takes you to decide to make the play, enter the order on your platform, and get it off to the broker for execution. Of course the market may move in your favor during that time.
In the ES, you can "instantly reverse"... long to short, and vice-versa.. with one click of the mouse.
2. Settlement. Once you sell, you can't do anything with that money until settlement. Of course you can/may use margin, but pay interest to the broker for doing so. Otherwise, you're locked out of the marketplace for 2 days. Of course you can play only a portion of your capital to have cleared funds for the next play while waiting for settlement. For comparison purposes I'm assuming you're committing ALL of your capital and don't have that option.
Besides, futures are 1256 contracts and get a bit of a favorable tax treatment... though that's not a slippage issue.
The daily $$ handle on the ES is about 10x that of the SPY. I'm sure that if there were an overall advantage to the SPY, it would be the one with the bigger handle.
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