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Think about it this way, as a small-time investor, you won't always get the best price. Your strategy should not be dependent on that. You should be building po

by lbotos 7y ago

Think about it this way, as a small-time investor, you won't always get the best price. Your strategy should not be dependent on that. You should be building positions or trading appropriately to your scale. (Read: Buy and hold or trading at stop-loss prices, not market orders) Said another way: The big guns will likely beat you, and you over time with LOTS of trading may lose a few % but for most small fries it shouldn't even matter. That said, it looks like Robinhood is making more than most on their orderflow: > In September 2018, Logan Kane, a contributor to Seeking Alpha, stated that Robinhood's payment for order flow generated ten times the revenue as other brokers receive from market makers for the same volume. Bloomberg has analyzed Robinhood's reports to the Securities and Exchange Commission (SEC), and calculates that Robinhood generates almost half of its income from payment for order flow. https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp https://www.investopedia.com/articles/active-trading/020515/...

Lazare 7y ago
> Think about it this way, as a small-time investor, you won't always get the best price. As a small-time investor, you can trivially get a better price than larger investors. And you must, by law, get the National Best Bid and Offer (NBBO) which is, at least for some purposes, the "best price". The deck is heavily stacked against retail investors trying to actively invest, but the issue isn't being unable to get good execution!
patio11 7y ago
Robinhood is making more than most on their orderflow Robinhood's apples weigh more than Schwab's oranges, because Robinhood encourages users to do options trading (and be more active on it) and Schwab does not. Spreads are wider in options, because they're less liquid, because they're (mechanically) larger trades [+], and because the degree of volatility in options prices is higher than therefore market makers have to charge higher spreads to justify the risk. High spreads mean happy market makers, so the amount you can charge a market maker for "Here's a retail order; would you like to collect the spread on it?" is higher. [+] Options contracts represent, typically, 100 shares. The notional exposure of 1 options contract on e.g. Google at a strike price of their current price is high. If you measure the other way, by transacted trade size, the spread on a $500 order of Google should be denominated in pennies and the spread of a $500 order of Google options will could be hundreds of dollars for a sufficiently illiquid strike/date combination. (e.g. Consider a put on Google at a strike price of $100 in late October. Google currently costs ~$1,200 a share. If you believe it is likely that Google declines by over 90% in October, and want to express that belief in an instrument, the financial industry can assist you in doing that, but the spread on that particular product will probably be wide. Without checking the quotes at all, I'd predict no buyers at any price and ample sellers at 5 cents a share. If you put in a $500 order expressing that view, you are paying ~$0.01 for the instrument and $499.99 for liquidity.)

by lbotos 7y ago

Lazare 7y ago

> Think about it this way, as a small-time investor, you won't always get the best price. As a small-time investor, you can trivially get a better price than larger investors. And you must, by law, get the National Best Bid and Offer (NBBO) which is, at least for some purposes, the "best price". The deck is heavily stacked against retail investors trying to actively invest, but the issue isn't being unable to get good execution!

patio11 7y ago

Robinhood is making more than most on their orderflow Robinhood's apples weigh more than Schwab's oranges, because Robinhood encourages users to do options trading (and be more active on it) and Schwab does not. Spreads are wider in options, because they're less liquid, because they're (mechanically) larger trades [+], and because the degree of volatility in options prices is higher than therefore market makers have to charge higher spreads to justify the risk. High spreads mean happy market makers, so the amount you can charge a market maker for "Here's a retail order; would you like to collect the spread on it?" is higher. [+] Options contracts represent, typically, 100 shares. The notional exposure of 1 options contract on e.g. Google at a strike price of their current price is high. If you measure the other way, by transacted trade size, the spread on a $500 order of Google should be denominated in pennies and the spread of a $500 order of Google options will could be hundreds of dollars for a sufficiently illiquid strike/date combination. (e.g. Consider a put on Google at a strike price of $100 in late October. Google currently costs ~$1,200 a share. If you believe it is likely that Google declines by over 90% in October, and want to express that belief in an instrument, the financial industry can assist you in doing that, but the spread on that particular product will probably be wide. Without checking the quotes at all, I'd predict no buyers at any price and ample sellers at 5 cents a share. If you put in a $500 order expressing that view, you are paying ~$0.01 for the instrument and $499.99 for liquidity.)