6 ms·

How much does this actually matter for the casual retail investor? I'll typically buy 5-10 shares of some ETFs every couple months via market orders (not on Rob

How much does this actually matter for the casual retail investor? I'll typically buy 5-10 shares of some ETFs every couple months via market orders (not on Robinhood), am I really getting bilked that bad?

op00to 6y ago
I dunno. What’s your strategy? Mine is to eke out as much as I can out of what little I have, so I use limit orders to keep within my strategy. Market orders would fuck that up.
- WanderPanda 6y ago
  I mean you are providing free sell options to the market if your limits are below the current price. I‘m not sure thats much better. I just place limits way above the current price to get a market order with no risk at getting rekt by a bug or a sudden market movement
  - drcode 6y ago
    While your analysis is correct, providing free sell options is a second-order effect, whereas a market order is a first-order effect. I think such second-order effects are much harder (though not impossible) for people to game.
rybosworld 6y ago
It matters much more for large orders, but there's always some additional risk with a market order regardless of size. Depending on your broker, they may have built-in safety mechanisms for market orders. I use Fidelity and they have a price improvement feature. They basically execute your order at the best possible price available at that time.
JoshTko 6y ago
Probably not in your scenario. But if you're making a larger order say $50k. you may see even like 0.5% difference in fill price between brokerages so $250. Also depends on liquidity of the stock being traded, if it's relatively low volume you may have even larger differences.
- jacurtis 6y ago
  I think this is the main takeaway from the article. The whole time i read it I kept thinking, that this actually sounds like a good tradeoff for the average Robin Hood customer. The way that this is bad is if you are a high frequency trader making micro-trades to capitalize on tiny upticks throughout the day. These rely on frequent 0.5% upticks to make money, so a 0.5% surcharge cancels out its effectiveness. Or someone who is pushing significant capital through the brokerage. If you are pushing $10k - $100k trades then this starts to really significantly hurt you. But then again, Robin Hood isn't really meant for you either. Schwabe, TD Ameritrade, Fedelity would work better for you. But for the average Robin Hood investor, most of us are making a handful of trades a month at small volumes (yes, even $1,000 trade is a small volume). Most Robin Hood customers are trading even less. A single share here and there. In the later case, this technique for revenue generation from Robin Hood is actually GOOD for its customers. Instead of paying a flat $7 trade fee that a larger investment firm might charge, you get a "free" trade that technically was marked up 0.5%. So on a $50 share, this means you pay $50.25, essentially a 25¢ fee. This is still better for Robin Hoods customers. And Robin Hood making money is actually a good thing for their customers, because it means they can stay around and continue to exist. Robin Hood serves a niche in the trading space that larger firms have no interest in serving. Robin Hood is starting to learn why the larger firms have no interest in this space, but if Robin Hood can figure it out, then it is good for the larger population that can benefit from its service.
leetcrew 6y ago
it probably doesn't matter for something like an S&P 500 ETF. the intraday movement is just going to be noise after a few months. if you're concerned, you can always set a limit order for the current ask price.
lordgrenville 6y ago
Was going to ask the same thing. I bought modest amounts of a couple of ETFs, and my broker (IBKR) flashed several big warnings about using a market order. I figured it probably didn't matter much since I'm planning to buy and hold, but a more cautious person would probably have done the limit order.
CarelessExpert 6y ago
Short answer: no. If you're purchasing in retail volumes and holding for the long term it's negligible. Don't sweat it.

op00to 6y ago

I dunno. What’s your strategy? Mine is to eke out as much as I can out of what little I have, so I use limit orders to keep within my strategy. Market orders would fuck that up.

WanderPanda 6y ago
I mean you are providing free sell options to the market if your limits are below the current price. I‘m not sure thats much better. I just place limits way above the current price to get a market order with no risk at getting rekt by a bug or a sudden market movement
- drcode 6y ago
  While your analysis is correct, providing free sell options is a second-order effect, whereas a market order is a first-order effect. I think such second-order effects are much harder (though not impossible) for people to game.

rybosworld 6y ago

It matters much more for large orders, but there's always some additional risk with a market order regardless of size. Depending on your broker, they may have built-in safety mechanisms for market orders. I use Fidelity and they have a price improvement feature. They basically execute your order at the best possible price available at that time.

JoshTko 6y ago

Probably not in your scenario. But if you're making a larger order say $50k. you may see even like 0.5% difference in fill price between brokerages so $250. Also depends on liquidity of the stock being traded, if it's relatively low volume you may have even larger differences.

jacurtis 6y ago
I think this is the main takeaway from the article. The whole time i read it I kept thinking, that this actually sounds like a good tradeoff for the average Robin Hood customer. The way that this is bad is if you are a high frequency trader making micro-trades to capitalize on tiny upticks throughout the day. These rely on frequent 0.5% upticks to make money, so a 0.5% surcharge cancels out its effectiveness. Or someone who is pushing significant capital through the brokerage. If you are pushing $10k - $100k trades then this starts to really significantly hurt you. But then again, Robin Hood isn't really meant for you either. Schwabe, TD Ameritrade, Fedelity would work better for you. But for the average Robin Hood investor, most of us are making a handful of trades a month at small volumes (yes, even $1,000 trade is a small volume). Most Robin Hood customers are trading even less. A single share here and there. In the later case, this technique for revenue generation from Robin Hood is actually GOOD for its customers. Instead of paying a flat $7 trade fee that a larger investment firm might charge, you get a "free" trade that technically was marked up 0.5%. So on a $50 share, this means you pay $50.25, essentially a 25¢ fee. This is still better for Robin Hoods customers. And Robin Hood making money is actually a good thing for their customers, because it means they can stay around and continue to exist. Robin Hood serves a niche in the trading space that larger firms have no interest in serving. Robin Hood is starting to learn why the larger firms have no interest in this space, but if Robin Hood can figure it out, then it is good for the larger population that can benefit from its service.

leetcrew 6y ago

it probably doesn't matter for something like an S&P 500 ETF. the intraday movement is just going to be noise after a few months. if you're concerned, you can always set a limit order for the current ask price.

lordgrenville 6y ago

Was going to ask the same thing. I bought modest amounts of a couple of ETFs, and my broker (IBKR) flashed several big warnings about using a market order. I figured it probably didn't matter much since I'm planning to buy and hold, but a more cautious person would probably have done the limit order.

CarelessExpert 6y ago

Short answer: no. If you're purchasing in retail volumes and holding for the long term it's negligible. Don't sweat it.