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Why would HFTs pay so much more for order flow from Robinhood vs other online brokerages?

• tptacek 8y ago
  Because individual retail traders are (a) generally uninformed and (b) relative to institutions, have very small positions they want to move in the market. Those orders are intrinsically more valuable, because they aren't risky to make markets for. Essentially, your trades have a lower cost basis than those of institutions. But the markets are generally priced assuming institutional traders. So if firms know you're not an exchange they can save some money on you, and Robinhood literally passes some of those savings to you. (I don't love Robinhood or anything, but the model makes perfect sense.)
• deleted 8y ago
  [deleted]
• physguy1123 8y ago
  It might simply just be that's the terms that Robinhood reached with the firms? Paying 0.2c/share and giving 0.2c/share price improvement is fairly similar from the perspective of a market maker as just paying 0.4c/share, and Robinhood might be funding themselves by having firms only compete on payment for orders and not on price improvement. On a more meta level, my firm suspects that Citadel is trying very hard to price other players out of the market even if it's at the cost of their current profitability, so they might be driving up the terms of newly minted deals. I don't work on the retail desk so I don't know.