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Likely the same as similar services like RobinHood. A quick Google suggests they make most of their money on interest from cash sitting around in user's account

Likely the same as similar services like RobinHood. A quick Google suggests they make most of their money on interest from cash sitting around in user's accounts that has not been invested yet.

gammateam 8y ago
And selling order flow
- dplgk 8y ago
  What is order flow?
  - gschier 8y ago
    I'm not familiar with it either, but this seems to provide a description https://en.wikipedia.org/wiki/Payment_for_order_flow https://en.wikipedia.org/wiki/Payment_for_order_flow
  - gammateam 8y ago
    User data on what stocks they buy and sell Except between the time the user clicks buy and when it the buy actually happens. Basically hedge funds are able to receive and parse this data, and change their orders to an advantage before the users order hits the actual exchange Its analogous to a MITM attack Despite my wording its not necessarily bad, but I think users should have a better understanding of it.
    - gammateam 8y ago
      (any insight on why this is downvoted -4 at time of writing?)
  - vostok 8y ago
    Seeing/selling order flow is a term of art in finance. Seeing order flow refers to the ability to trade against customer orders. Selling order flow is getting paid by someone else for the ability to trade against customer orders. Imagine that a stock is bid at $100.00 and offered at $100.01. Assume that market makers estimate the fair price to be $100.005 unconditionally. A customer sends a marketable buy limit order at $100.01. If this hits the exchange then the person who's offering at $100.01 will make $0.005. If the order flow gets sold (i.e. someone gets to see the flow before it hits the exchange) then the internalizer can fill it at $100.01 and make the $0.005 themselves instead of letting someone else on the exchange do it. It has nothing to do with front running or even information. This is really valuable because you're not competing for speed with other market participants and you expect the customer flow to be uninformed so the trade is less likely to move against you before you trade out. This is a problem for market structure because it discourages people from quoting on the exchange.
    - gbrits 8y ago
      So the market maker who pays for order flow data takes the spread. But how are they able to trade with the buyer at $100.01 when there are limit asks on the book already at that price? Seems they need to cut the line?
      - vostok 8y ago
        That's part of thr reason that they pay for the flow. They're able to sell at $100.01 off exchange even if there was someone else who was willing to sell at $100.01 on the exchange first. This also why I think payment for order flow is bad even if the first order effects are not bad for Robinhood customers under reasonable assumptions.
    - dplgk 8y ago
      Why is this not just a spread and does RH not just have spreads to make money?
JonasJSchreiber 8y ago
And by selling info about customer orders to front runners. IIUC, these are high frequency traders who may place similar orders milliseconds in advance of yours then profit from the fact that you have to pay a bit more to fill your order. Full disclosure, I continue to use Robinhood despite this.
- paperwork 8y ago
  This is highly illegal and taken very seriously. Is this speculation on your part or do you know this for a fact (in which case, you should report it).
  - mjlee 8y ago
    https://seekingalpha.com/article/4205379-robinhood-making-millions-selling-millennial-customers-high-frequency-traders https://seekingalpha.com/article/4205379-robinhood-making-mi... They're probably not front-running. They are almost certainly selling trade information to HFT firms.
  - 55555 8y ago
    Are you sure it's illegal in all cases? I was under the impression this was standard practice. https://www.cnbc.com/2014/03/30/michael-lewis-flash-boys-and-60-minute.html https://www.cnbc.com/2014/03/30/michael-lewis-flash-boys-and...
  - JonasJSchreiber 8y ago
    It's been widely reported [0]. And as I said I feel like it's still a fair deal. Some HFT's get my orders and they know I purchased 2 AMZN yesterday a few seconds before it executed. In return I get to trade for free on their platform. [0] https://www.bloomberg.com/news/articles/2018-10-15/robinhood-gets-almost-half-its-revenue-in-controversial-bargain-with-high-speed-traders https://www.bloomberg.com/news/articles/2018-10-15/robinhood...
- thisisit 8y ago
  It is not front running. These HFT are called market makers. Essentially, brokers show you the NBBO - National Best Bid and Offer. When you place an order on that price, one of the many market makers will pick it up. At any given point of time they will hold multiple buys/sells. So, they make money by collecting the spreads. Nearly all brokers tend to sell order information to one or many market makers. It is neither illegal nor harm retail customers, not unless these customers are trying to run some HFT algos on their own.

Likely the same as similar services like RobinHood. A quick Google suggests they make most of their money on interest from cash sitting around in user's accounts that has not been invested yet.

gammateam 8y ago

And selling order flow

dplgk 8y ago
What is order flow?
- gschier 8y ago
  I'm not familiar with it either, but this seems to provide a description https://en.wikipedia.org/wiki/Payment_for_order_flow https://en.wikipedia.org/wiki/Payment_for_order_flow
- gammateam 8y ago
  User data on what stocks they buy and sell Except between the time the user clicks buy and when it the buy actually happens. Basically hedge funds are able to receive and parse this data, and change their orders to an advantage before the users order hits the actual exchange Its analogous to a MITM attack Despite my wording its not necessarily bad, but I think users should have a better understanding of it.
  - gammateam 8y ago
    (any insight on why this is downvoted -4 at time of writing?)
- vostok 8y ago
  Seeing/selling order flow is a term of art in finance. Seeing order flow refers to the ability to trade against customer orders. Selling order flow is getting paid by someone else for the ability to trade against customer orders. Imagine that a stock is bid at $100.00 and offered at $100.01. Assume that market makers estimate the fair price to be $100.005 unconditionally. A customer sends a marketable buy limit order at $100.01. If this hits the exchange then the person who's offering at $100.01 will make $0.005. If the order flow gets sold (i.e. someone gets to see the flow before it hits the exchange) then the internalizer can fill it at $100.01 and make the $0.005 themselves instead of letting someone else on the exchange do it. It has nothing to do with front running or even information. This is really valuable because you're not competing for speed with other market participants and you expect the customer flow to be uninformed so the trade is less likely to move against you before you trade out. This is a problem for market structure because it discourages people from quoting on the exchange.
  - gbrits 8y ago
    So the market maker who pays for order flow data takes the spread. But how are they able to trade with the buyer at $100.01 when there are limit asks on the book already at that price? Seems they need to cut the line?
    - vostok 8y ago
      That's part of thr reason that they pay for the flow. They're able to sell at $100.01 off exchange even if there was someone else who was willing to sell at $100.01 on the exchange first. This also why I think payment for order flow is bad even if the first order effects are not bad for Robinhood customers under reasonable assumptions.
  - dplgk 8y ago
    Why is this not just a spread and does RH not just have spreads to make money?

JonasJSchreiber 8y ago

And by selling info about customer orders to front runners. IIUC, these are high frequency traders who may place similar orders milliseconds in advance of yours then profit from the fact that you have to pay a bit more to fill your order. Full disclosure, I continue to use Robinhood despite this.

paperwork 8y ago
This is highly illegal and taken very seriously. Is this speculation on your part or do you know this for a fact (in which case, you should report it).
- mjlee 8y ago
  https://seekingalpha.com/article/4205379-robinhood-making-millions-selling-millennial-customers-high-frequency-traders https://seekingalpha.com/article/4205379-robinhood-making-mi... They're probably not front-running. They are almost certainly selling trade information to HFT firms.
- 55555 8y ago
  Are you sure it's illegal in all cases? I was under the impression this was standard practice. https://www.cnbc.com/2014/03/30/michael-lewis-flash-boys-and-60-minute.html https://www.cnbc.com/2014/03/30/michael-lewis-flash-boys-and...
- JonasJSchreiber 8y ago
  It's been widely reported [0]. And as I said I feel like it's still a fair deal. Some HFT's get my orders and they know I purchased 2 AMZN yesterday a few seconds before it executed. In return I get to trade for free on their platform. [0] https://www.bloomberg.com/news/articles/2018-10-15/robinhood-gets-almost-half-its-revenue-in-controversial-bargain-with-high-speed-traders https://www.bloomberg.com/news/articles/2018-10-15/robinhood...
thisisit 8y ago
It is not front running. These HFT are called market makers. Essentially, brokers show you the NBBO - National Best Bid and Offer. When you place an order on that price, one of the many market makers will pick it up. At any given point of time they will hold multiple buys/sells. So, they make money by collecting the spreads. Nearly all brokers tend to sell order information to one or many market makers. It is neither illegal nor harm retail customers, not unless these customers are trying to run some HFT algos on their own.