6 ms·

As someone that paid $25,000 in options commissions in 2015 even after negotiating down to 50 cents/contract and no ticket charge, free options trading in excha

As someone that paid $25,000 in options commissions in 2015 even after negotiating down to 50 cents/contract and no ticket charge, free options trading in exchange for my trade data is a fair trade Now if only they'd give the option of Portfolio Margining instead of just Reg-T margining, I'd let the HFT's pair-program with me in person.

deleted 8y ago
[deleted]
anonu 8y ago
It's never free. You're always paying somewhere. If not explicitly, you're paying via spreads or rich options valuations when you're buying...
- tptacek 8y ago
  Exactly how do you think you're paying it here? Be specific. Later: to be clear, my subtext is that Robinhood customers aren't actually paying anything and are sort of getting a free lunch here. The money Robinhood pockets from your trades isn't available to you in any form, at least until someone starts the brokerage that pays you to trade.
  - anonu 8y ago
    Typical internalizer trade is: 1. RH user wants to buy 1000 shares of XYZ. Offer price is $10.00 2. RH forwards the full order to their execution venue partner. They get paid (assuming SeekingAlpha story is true) $260/$1mm traded, or $2.60. 3. Executor takes the order and immediately sends 900 shares to the market, lifting the offers. Now best offer is $10.10 4. Executor facilitates the tail of the order, 100 shares, at $10.10. So they are short -100 shares here - or they can give a de minimis price improvement (like 10.0985) to meet their contractual obligations. 5. Temporary market impact attenuates and offer mean reverts to $10.05 6. Executor still has risk on their books - but their paper mark-to-market profit is $5.00. 7. Risk can be mitigated by waiting for crossing order or waiting for more favorable offers to close out the short. So roughly speaking they paid $2.60 to get the order, but made $5 on it...
    - tptacek 8y ago
      That's how you're saying the internalizer made money on it. Obviously, they make money on the order flow. The question is how they cost you anything. What could you have done differently to capture the $2.40 in hypothetical profits here?
      - VRay 8y ago
        He's saying if you spent a few weeks getting hooked up to the exchange directly, you possibly could have gotten your order filled for $10 a share
      - anonu 8y ago
        So, first off, I am not saying internalizers are all evil and that pfof is bad. That $2.40 your retail trade earned the internalizer is the price you pay for convenience and immediacy. You let someone else handle the order and they do what they want with it - within certain guidelines. You could have saved the hypothetical $2.40 had you traded differently, albeit slower, and caused less market impact with your order. Of course, trading slower comes with its own slippage risk or opportunity cost that the market moves out of your favor. But it could also move in your favor... However, if you let a greedy HFT use your order to impact the market - it will always be out of your favor. For a small retail guy, you are powerless unless there is a RobinHood 2.0 that decides to offer comm-free trades + does not sell your orders + makes money doing something else ... stock loan maybe? EDIT: Also the HFTs hate limit orders because it reduces the amount they can internalize. They also generally have a contractual obligation to always execute your order. So you can always use a limit at or inside the offer if youre buying, and potentially save on that cost.
        tptacek 8y ago
        I don't understand the outline of your argument. If what you're saying is true, then you can non-hypothetically save that $2.40 by... trading slower and with less impact on the market. This is why I asked for specificity. Yes, we agree, internalizers pay for order flow because they can make money on it. The question is: can you make that money on your own order flow, or is the allocation of orders to internalizers Pareto-optimal?
- gammateam 8y ago
  > It's never free Yeah I don't really care about the semantics here, it is commissionless. My strategies aren't materially affected by some broker-level BS, I am satisfied with the fills I get on Robinhood vs what I can see on the order books using other tools.

deleted 8y ago

[deleted]

anonu 8y ago

It's never free. You're always paying somewhere. If not explicitly, you're paying via spreads or rich options valuations when you're buying...

tptacek 8y ago
Exactly how do you think you're paying it here? Be specific. Later: to be clear, my subtext is that Robinhood customers aren't actually paying anything and are sort of getting a free lunch here. The money Robinhood pockets from your trades isn't available to you in any form, at least until someone starts the brokerage that pays you to trade.
- anonu 8y ago
  Typical internalizer trade is: 1. RH user wants to buy 1000 shares of XYZ. Offer price is $10.00 2. RH forwards the full order to their execution venue partner. They get paid (assuming SeekingAlpha story is true) $260/$1mm traded, or $2.60. 3. Executor takes the order and immediately sends 900 shares to the market, lifting the offers. Now best offer is $10.10 4. Executor facilitates the tail of the order, 100 shares, at $10.10. So they are short -100 shares here - or they can give a de minimis price improvement (like 10.0985) to meet their contractual obligations. 5. Temporary market impact attenuates and offer mean reverts to $10.05 6. Executor still has risk on their books - but their paper mark-to-market profit is $5.00. 7. Risk can be mitigated by waiting for crossing order or waiting for more favorable offers to close out the short. So roughly speaking they paid $2.60 to get the order, but made $5 on it...
  - tptacek 8y ago
    That's how you're saying the internalizer made money on it. Obviously, they make money on the order flow. The question is how they cost you anything. What could you have done differently to capture the $2.40 in hypothetical profits here?
    - VRay 8y ago
      He's saying if you spent a few weeks getting hooked up to the exchange directly, you possibly could have gotten your order filled for $10 a share
    - anonu 8y ago
      So, first off, I am not saying internalizers are all evil and that pfof is bad. That $2.40 your retail trade earned the internalizer is the price you pay for convenience and immediacy. You let someone else handle the order and they do what they want with it - within certain guidelines. You could have saved the hypothetical $2.40 had you traded differently, albeit slower, and caused less market impact with your order. Of course, trading slower comes with its own slippage risk or opportunity cost that the market moves out of your favor. But it could also move in your favor... However, if you let a greedy HFT use your order to impact the market - it will always be out of your favor. For a small retail guy, you are powerless unless there is a RobinHood 2.0 that decides to offer comm-free trades + does not sell your orders + makes money doing something else ... stock loan maybe? EDIT: Also the HFTs hate limit orders because it reduces the amount they can internalize. They also generally have a contractual obligation to always execute your order. So you can always use a limit at or inside the offer if youre buying, and potentially save on that cost.
      - tptacek 8y ago
        I don't understand the outline of your argument. If what you're saying is true, then you can non-hypothetically save that $2.40 by... trading slower and with less impact on the market. This is why I asked for specificity. Yes, we agree, internalizers pay for order flow because they can make money on it. The question is: can you make that money on your own order flow, or is the allocation of orders to internalizers Pareto-optimal?
gammateam 8y ago
> It's never free Yeah I don't really care about the semantics here, it is commissionless. My strategies aren't materially affected by some broker-level BS, I am satisfied with the fills I get on Robinhood vs what I can see on the order books using other tools.