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It would be illegal if Robinhood did the front running. They don't. Instead they sell your trade to a HFT firm to execute. What do you think is going on at the

It would be illegal if Robinhood did the front running. They don't. Instead they sell your trade to a HFT firm to execute. What do you think is going on at the other side of that trade. They're dancing around the legal definition of front running, and they've gotten their hand slapped in the past for it. (E.g. they were fined $1.25M in 2019 for actual front running per the legal definition.)

gruez 6y ago
>It would be illegal if Robinhood did the front running. They don't. Instead they sell your trade to a HFT firm to execute. I'm skeptical that this interpretation/loophole actually exists. If you're executing the trade, you're the broker. Shuffling it between firms doesn't absolve you of the responsibility. The fact they got fined means it clearly didn't work.
- garmaine 6y ago
  What they got fined for was playing brokers off each other for the same order in order to maximize their fee. This violates the best execution principle. Now they give each order to one broker only, irregardless of the fee. But why is the broker giving a fee to Robinhood to handle the trade? That only makes sense for them to do if they have the stock available at a lower price point than the Robinhood user is getting--had the order gone straight to market it would have cleared at a better price. The broker is paying Robinhood for the burden of handling the order. Why? What's the profit for them? If they just sent your order to the market and it cleared at the market rate, there is none. Instead they do a number of tricks that are designed to profit off of foreknowledge of the order before it hits the market, while trying not to run afoul of front-running regulations. When they succeed, they do so by taking money that you left on the table. All that said, I still use Robinhood. I don't trade at high enough volumes to get upset over these hidden costs, and I'm under no illusions that other retail brokerages aren't doing exactly the same thing.
quickthrowman 6y ago
> What do you think is going on at the other side of that trade. A market maker happy to take the spread on a trade from someone that isn’t going to slam them with 5 more 100 lot orders and force them into an overly large short position. Nobody is going to front run my 25 share QQQ order. Citadel wants to execute our orders, executing odd lot trades from retail traders is lower risk and more profitable than transacting with ‘market participants’ with good information and lots of capital.

gruez 6y ago

>It would be illegal if Robinhood did the front running. They don't. Instead they sell your trade to a HFT firm to execute. I'm skeptical that this interpretation/loophole actually exists. If you're executing the trade, you're the broker. Shuffling it between firms doesn't absolve you of the responsibility. The fact they got fined means it clearly didn't work.

garmaine 6y ago
What they got fined for was playing brokers off each other for the same order in order to maximize their fee. This violates the best execution principle. Now they give each order to one broker only, irregardless of the fee. But why is the broker giving a fee to Robinhood to handle the trade? That only makes sense for them to do if they have the stock available at a lower price point than the Robinhood user is getting--had the order gone straight to market it would have cleared at a better price. The broker is paying Robinhood for the burden of handling the order. Why? What's the profit for them? If they just sent your order to the market and it cleared at the market rate, there is none. Instead they do a number of tricks that are designed to profit off of foreknowledge of the order before it hits the market, while trying not to run afoul of front-running regulations. When they succeed, they do so by taking money that you left on the table. All that said, I still use Robinhood. I don't trade at high enough volumes to get upset over these hidden costs, and I'm under no illusions that other retail brokerages aren't doing exactly the same thing.

quickthrowman 6y ago

> What do you think is going on at the other side of that trade. A market maker happy to take the spread on a trade from someone that isn’t going to slam them with 5 more 100 lot orders and force them into an overly large short position. Nobody is going to front run my 25 share QQQ order. Citadel wants to execute our orders, executing odd lot trades from retail traders is lower risk and more profitable than transacting with ‘market participants’ with good information and lots of capital.