4 ms·

Does Robinhood sell retail order flow on? I've read conflicting views both ways, but can't really see how they'd make any money if they didn't. I think the way

Does Robinhood sell retail order flow on? I've read conflicting views both ways, but can't really see how they'd make any money if they didn't. I think the way it's being promoted is a bit dangerous though. It seems like they're promoting to the exact market that really, really shouldn't be flipping stocks (and promoting use of margin to do so). Interactive brokers is what, a few bucks a trade anyway? Something aimed at a similar market that I like a lot more is 'acorns'. It just rounds up any transaction you make to some number, and invests the difference in one of a few ETFs. I think it promotes a much healthier view of investing for the average young joe/jill.

Veratyr 10y ago
> Interactive brokers is what, a few bucks a trade anyway? IB Commission is $0.005 per share, with a minimum of $1 total. The problem with IB for regular folks is a bunch of monthly fees if you don't have enough activity each month. https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks1 https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...
- ryankennedyio 10y ago
  True, I forgot about the extra monthly fees -- though you can just use free, 20 minute delayed data. I also forgot that the US is so cheap -- I pay $6 each way with IB on the ASX.
  - Veratyr 10y ago
    Is there a particular reason you trade the ASX? It isn't too hard to get a US brokerage account in Australia.
    - ryankennedyio 10y ago
      Smallcap market here is fun (read: it's pretty stupid). Otherwise, I'm just more used to reading Australian news, more local people on twitter, etc. It's just more in my 'sphere', and I know a lot more about the local companies than I do about the U.S. counterparts. I have an IB account, but even setting that up to trade properly requires owning a company. I did wake up early and trade the US options market a little while ago & that was pretty great. Might play with some algorithmic stuff I have that works on the ASX, but on the US, just need a load more data.
- eurg 10y ago
  There are German IB resellers (e.g. CapTrader) who have slightly higher per trade minimums (2$) and commission (~0.01$ per share), but absolutely no monthly minimum. As I'm not doing trading, but only holding onto some Vanguard ETFs, that's rather sweet (for me). Except Austrian tax laws, which will make me close all that anyway...
uraza 10y ago
Robinhood is selling order flow, according to their rule 606 disclosure: https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHF%20PFO%20Disclosure.pdf https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...
wocram 10y ago
Literally all retail brokers are getting paid by a citadel for their orders.
HoyaSaxa 10y ago
Yes, they receive payment for routing their order flow to specific market makers. KCG (Knight Capital) and Citadel are the two players that typically get the vast majority of the retail order flow. Two Sigma is starting to get in the business as well. The exact amount Robinhood receives is going to vary considerably, but it primarily depends on if the order takes liquidity(market orders + marketable limit orders) or adds liquidity (normal limit orders). Retail brokers typically end up making ~$0.001 per share + commission + fees + interest on cash balances + financing spread from margin lending and stock loan Robinhood makes $0.001 per share + fees + interest on cash balances + financing spread from margin lending I'm skeptical Robinhood will ever be able to become profitable. They're great for the consumer (except for their heavy marketing of margin lending), but I don't see them attracting the power users they need to make the business model work. If you do use Robinhood: 1) Build a well diversified portfolio (30+ companies) 2) Don't use leverage 3) Don't trade on a daily/weekly basis
- astrange 10y ago
  > 1) Build a well diversified portfolio (30+ companies) This is sensible but Robinhood doesn't have fractional shares (it would cost something if it did), so you're really raising the bar on minimum investments here. If you just bought one Vanguard ETF and did nothing else, that'd be a great plan.
  - toomuchtodo 10y ago
    Yeah, but that'd show Robinhood's user base there is no need for the product.
    - walshemj 10y ago
      And TBH if you don't have the finances to be able to hit a $1k minimum buy investing in individual stocks is probably something you should leave for a few years.
      - astrange 10y ago

Veratyr 10y ago

> Interactive brokers is what, a few bucks a trade anyway? IB Commission is $0.005 per share, with a minimum of $1 total. The problem with IB for regular folks is a bunch of monthly fees if you don't have enough activity each month. https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks1 https://www.interactivebrokers.com/en/index.php?f=1590&p=sto...

ryankennedyio 10y ago
True, I forgot about the extra monthly fees -- though you can just use free, 20 minute delayed data. I also forgot that the US is so cheap -- I pay $6 each way with IB on the ASX.
- Veratyr 10y ago
  Is there a particular reason you trade the ASX? It isn't too hard to get a US brokerage account in Australia.
  - ryankennedyio 10y ago
    Smallcap market here is fun (read: it's pretty stupid). Otherwise, I'm just more used to reading Australian news, more local people on twitter, etc. It's just more in my 'sphere', and I know a lot more about the local companies than I do about the U.S. counterparts. I have an IB account, but even setting that up to trade properly requires owning a company. I did wake up early and trade the US options market a little while ago & that was pretty great. Might play with some algorithmic stuff I have that works on the ASX, but on the US, just need a load more data.
eurg 10y ago
There are German IB resellers (e.g. CapTrader) who have slightly higher per trade minimums (2$) and commission (~0.01$ per share), but absolutely no monthly minimum. As I'm not doing trading, but only holding onto some Vanguard ETFs, that's rather sweet (for me). Except Austrian tax laws, which will make me close all that anyway...

uraza 10y ago

Robinhood is selling order flow, according to their rule 606 disclosure: https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal/RHF%20PFO%20Disclosure.pdf https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...

wocram 10y ago

Literally all retail brokers are getting paid by a citadel for their orders.

HoyaSaxa 10y ago

Yes, they receive payment for routing their order flow to specific market makers. KCG (Knight Capital) and Citadel are the two players that typically get the vast majority of the retail order flow. Two Sigma is starting to get in the business as well. The exact amount Robinhood receives is going to vary considerably, but it primarily depends on if the order takes liquidity(market orders + marketable limit orders) or adds liquidity (normal limit orders). Retail brokers typically end up making ~$0.001 per share + commission + fees + interest on cash balances + financing spread from margin lending and stock loan Robinhood makes $0.001 per share + fees + interest on cash balances + financing spread from margin lending I'm skeptical Robinhood will ever be able to become profitable. They're great for the consumer (except for their heavy marketing of margin lending), but I don't see them attracting the power users they need to make the business model work. If you do use Robinhood: 1) Build a well diversified portfolio (30+ companies) 2) Don't use leverage 3) Don't trade on a daily/weekly basis

astrange 10y ago
> 1) Build a well diversified portfolio (30+ companies) This is sensible but Robinhood doesn't have fractional shares (it would cost something if it did), so you're really raising the bar on minimum investments here. If you just bought one Vanguard ETF and did nothing else, that'd be a great plan.
- toomuchtodo 10y ago
  Yeah, but that'd show Robinhood's user base there is no need for the product.
  - walshemj 10y ago
    And TBH if you don't have the finances to be able to hit a $1k minimum buy investing in individual stocks is probably something you should leave for a few years.
    - astrange 10y ago