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didn't the customers notice that they were given bad execution prices ? or would that be very hard to notice in practice ? (I'm not a trading expert obviously)

calmworm 6y ago
Only place limit orders. If you place a market order you will absolutely get a bad execution price on Robinhood.
- le_didil 6y ago
  aha i see. thanks
- nickpeterson 6y ago
  To add to this, the swing is really wild. I’ve been tinkering with crypto trades manually through the app to get a hang for it, and limit orders still only tend to go through after you’re a few cents away from the market price, but if you naively do a market buy it will be 50-60 cents off in the wrong direction.
  - solaarphunk 6y ago
    You’re crossing the spread
  - smabie 6y ago
    You're taking instead of making with a market order, the fees are higher and the execution is worse.
reissbaker 6y ago
You'd only typically lose cents (if that; often enough you don't lose anything) per share. And there's no easy way to validate the price is "fair," since share prices are so fluid. It's also a fairly victimless crime, as the article notes (although it downplays this); in practice, it seems users typically saved more money thanks to Robinhood's zero-fee trading than they lost in less optimal pricing for their trades. The problem here wasn't that payment-for-order-flow is bad — even Schwab does it for their zero-fee trading platform, and in practice it's often a good tradeoff — the problem is Robinhood lied about it.
- bostik 6y ago
  And the fact that RH kept a far larger portion of the price improvement as their kickback. As the article mentions, the standard brokerage cut is 20% from the price improvement. RH demanded 80% of it for themselves. Sure, their customers still got a better price than available in the lit exchange(s) but they were bilked by the 4x hidden commission.
frockington1 6y ago
I immediately noticed when I switched brokers how much better the prices were, even on limit orders. When I used Robinhood I was 19 years old with no way to know better, aka their dream client
- 314 6y ago
  Could you clarify what you mean by better - do you get a smaller spread?
  - frockington1 6y ago
    For a buy scenario. If a stock is trading at $20, other brokerages would execute a market order at $19.9997/share where Robinhood would execute a market order at $20.09/share. I noticed this also would occur but less noticeable on limit orders
    - smabie 6y ago
      If the nbbo offer was truly $20 at the time of order execution, there's no way you could get filled at $20.09.

calmworm 6y ago

Only place limit orders. If you place a market order you will absolutely get a bad execution price on Robinhood.

le_didil 6y ago
aha i see. thanks
nickpeterson 6y ago
To add to this, the swing is really wild. I’ve been tinkering with crypto trades manually through the app to get a hang for it, and limit orders still only tend to go through after you’re a few cents away from the market price, but if you naively do a market buy it will be 50-60 cents off in the wrong direction.
- solaarphunk 6y ago
  You’re crossing the spread
- smabie 6y ago
  You're taking instead of making with a market order, the fees are higher and the execution is worse.

reissbaker 6y ago

You'd only typically lose cents (if that; often enough you don't lose anything) per share. And there's no easy way to validate the price is "fair," since share prices are so fluid. It's also a fairly victimless crime, as the article notes (although it downplays this); in practice, it seems users typically saved more money thanks to Robinhood's zero-fee trading than they lost in less optimal pricing for their trades. The problem here wasn't that payment-for-order-flow is bad — even Schwab does it for their zero-fee trading platform, and in practice it's often a good tradeoff — the problem is Robinhood lied about it.

bostik 6y ago
And the fact that RH kept a far larger portion of the price improvement as their kickback. As the article mentions, the standard brokerage cut is 20% from the price improvement. RH demanded 80% of it for themselves. Sure, their customers still got a better price than available in the lit exchange(s) but they were bilked by the 4x hidden commission.

frockington1 6y ago

I immediately noticed when I switched brokers how much better the prices were, even on limit orders. When I used Robinhood I was 19 years old with no way to know better, aka their dream client

314 6y ago
Could you clarify what you mean by better - do you get a smaller spread?
- frockington1 6y ago
  For a buy scenario. If a stock is trading at $20, other brokerages would execute a market order at $19.9997/share where Robinhood would execute a market order at $20.09/share. I noticed this also would occur but less noticeable on limit orders
  - smabie 6y ago
    If the nbbo offer was truly $20 at the time of order execution, there's no way you could get filled at $20.09.