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Robinhood Said to Get 40% Revenue from HFT Firms Like Citadel (2018)
- wocram 6y agohttps://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%20Rule%20606a%20and%20607%20Disclosure%20Report%20Q3%202020.pdf https://cdn.robinhood.com/assets/robinhood/legal/RHS%20SEC%2... from https://robinhood.com/us/en/about/legal/ https://robinhood.com/us/en/about/legal/ enumerates their revenue from PFOF.
- gennarro 6y ago> 40% of Robinhood's revenues earlier this year were derived from selling its customers' orders to firms This has been openly known for years now. The article presents it as “stealing” but it’s really more the case of data leakage and the market becoming less optimal. Free trading isn’t possible without something to pay for it unfortunately.
- ta1234567890 6y ago> This has been openly known for years now. And likely nobody cared about it, until now when there’s a huge conflict of interest for RH and they’ve chosen a side (against their users).
- centimeter 6y agoTo clarify how this works: There is a public book of buy/sell orders. HFTs would prefer not to put their orders on these books for various legitimate reasons (including fees). If (and only if) HFTs (or other trading firms) are willing to offer the user a better price than the best available price on the market, Robin Hood will just give the order to them instead of placing the order on the public market. So if the market price is $10, and an HFT is willing to sell for $9.95, then Robin Hood might give the user an execution price of $9.97 and keep the 2 cents to themselves. The user gets a better price than they would have on the open market, and a better price than they were expecting.
- babyshake 6y agoDoes Citadel use this data for anything besides HFT front running? For example, I would think not just knowing price and volume or a stock but knowing who exactly is buying it and in what quantities would end up being a far more valuable source of alpha. I'd love to learn more about the potential techniques they are using.
- wocram 6y agoThey are not allowed to use it for very much at all, but Citadel has regularly been fined for breaking rules.
- mason55 6y agoIt’s not front running. It’s reducing the chance of adverse selection in market making. Front running is highly illegal.
- PaulHoule 6y agoCitadel gets first dibs on trades from Robinhood users. If they want the trade they take it, otherwise they send it on to some place else. Fidelity does this also and runs ads on TV that explain the trading process that are factually correct if not clear on why exactly the HFT is paying for order flow. Basically the HFT is "making the market"; somebody wants to buy 5 shares of this stock, a moment later somebody wants to sell 6, the HFT is a buffer between all of those people. With exclusive order flow from Robinhood, Fidelity or somebody like that they have a big pool of liquidity if all of a sudden their trading strategy says they should buy or sell that.
- ummonk 6y agoFidelity is explicit that it does not take payment for order flow.
- kchr 6y agoNot a user of RH, but I cannot imagine they aren't gathering these kind of analytics on their users as well as the order flow data.
- sxp 6y agoThey got hit with a $65M SEC settlement for this last December: https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_on_Selling_Clients'_Orders https://en.wikipedia.org/wiki/Robinhood_(company)#SEC_Probe_... This is a clear case of "if you're not paying for the product, you are the product".
- partiallypro 6y agoYeah, but now almost every brokerage is 0 commission unless you are trading large blocks.
- jedberg 6y agoAnd chances are if you're trading large blocks you have a lot of money, making you a premium customer, meaning you get free trades anyway!
- ummonk 6y agoYeah but not all of them are selling order flow. E.g. Vanguard and Fidelity don't sell order flow and haven't blocked purchases of these stocks. They make their money the same way banks do.
- silicon2401 6y agoCan one buy stocks through Vanguard?
- jrickert 6y agoYes, Vanguard supports individual stocks with no trading fees.
- xwdv 6y agoI’ll gladly be the product for 0 commission trades.
- 6y ago
- meteor333 6y agoHonest question: Is there a way to circumvent these HFT firms and create a direct trading app with retailers interest in mind? If yes I'd love to work with someone to make this happen (technical person here).
- formercoder 6y agoSure, if people wanted to pay to trade.
- mtoner23 6y agoIf you want commission free trading then you need the HFT firms and payment for order flow. These firms hurt institutional investors much more than retail.
- HenryKissinger 6y agoIn order to process actual securities orders to actual exchanges, you'll need to file a metric ton of paperwork with your state government and the federal government, and comply with a lot of regulations.
- ackbar03 6y agoAnd the infrastructure, market access, lisences
- Denvercoder9 6y agoYou can directly route all your orders to an exchange, but HFT firms are active there as well, and they might even get paid for it by the exchange (which you have to pay much higher commissions than what retail traders are paying right now). All alternatives eventually end up reinventing what the HFT firms do.
- dannyw 6y ago“ Just got a tip that Citadel reloaded their shorts before they told Robinhood to stop trading $GME. If this is true, Ken Griffin and the Robinhood founders should be in jail. This is class warfare.” https://mobile.twitter.com/justinkan/status/1354853920762253315 https://mobile.twitter.com/justinkan/status/1354853920762253...
- na85 6y agoIt's troubling how blatant this is. They clearly have confidence that they will not suffer any adverse consequences, otherwise they'd have taken more steps to cover their tracks.
- Triv888 6y agoThey should be in jail, after being stripped of all their assets.
- bko 6y agoWhat about this should be illegal? Holding naked shorts? Or telling Robinhood to do something?
- bcrosby95 6y agoI'm taking it with a huge grain of salt and doubt it happened. But... assumming it did... calling brokerage firms to stop buy orders from retail investors so you can drive down the price of stock? If that isn't illegal what the fuck is?
- captainarab 6y agoThis is 100% class warfare. If you have some $GME - hold.
- anonu 6y agobad advice. you only need to trade 1 share for the stock to become worthless. Holding doesn't ensure the price stays where it is.
- slg 6y agoThese type of comments just feel naive to me. Maybe this hurts a few firms and causes losses for a few billionaires, but do people think there aren't other firms and other billionaires making a killing on this too?
- tracyhenry 6y agoThe point is not to hurt all billionaires, but those who hold 140% short positions.
- slg 6y agoThat isn't "100% class warfare" then.
- mg794613 6y agoWell the way it looks now, if they don't watch their steps they won't have a userbase with their latest trick they pulled.
- platz 6y agoSince Interactive Brokers isn't "free trading" (a la Robinhood), why would it also block buying GME stock?
- anonu 6y agoIts PR. Makes them look good. SEC isnt stepping in - so they are. A la Twitter.
- dcolkitt 6y agoFrom what I can tell, IB seems to have initially blocked just trading on margin. Which makes sense, given the extreme volatility of the collateral. But then shortly later, they set to liquidation only. I’d guesstimate that 80%+ of IBs customer base trades with leverage. So, I’d bet that their internal systems had no reliable to block margin trading, but allow unleveraged positions
- anonu 6y agoTurning off names like AMC and GME only means less revenue for RobinHood....
- tampatrev 6y agoWrong because RobinHood is paid handsomely by the shorts.