4 ms·

Although robinhood's app was pretty revolutionary, I think their real "innovation" was removing the cost of trades, basically forced the entire market to remove

Although robinhood's app was pretty revolutionary, I think their real "innovation" was removing the cost of trades, basically forced the entire market to remove that. Before, it would cost 4.99+ to execute a trade, so if you were not buying significant amounts that could EASILY eat up a lot of profits.

pfisch 5y ago
There have been brokers like that for at least 15 years. Zecco was doing it back in like 2006.
- emteycz 5y ago
  Yeah, it is standard in Europe for at least the whole last decade.
  - md_ 5y ago
    Note that it's illegal in the UK and being scrutinized in the EU: https://www.ft.com/content/3254a7c5-3c9b-468c-9ed4-a324f5e42474 https://www.ft.com/content/3254a7c5-3c9b-468c-9ed4-a324f5e42....
    - emteycz 5y ago
      Yeah, another example of the "great" EU "helping" the people...
      - md_ 5y ago
        Agreed; it's disappointing that the UK beat them to banning it.
sniperjzp 5y ago
It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. The more transactions, the more they earn. - https://fortune.com/2020/07/08/robinhood-makes-millions-selling-your-stock-trades-is-that-so-wrong/ https://fortune.com/2020/07/08/robinhood-makes-millions-sell...
- thebean11 5y ago
  All brokerages do this. RH started charging $0 + (selling order flow) while everyone was charging $5-10 + (selling order flow). For smaller trades that's charging 99+% less than their competitors at the time..
- AdamN 5y ago
  That's still 'free'. Every business makes money somewhere and when you're not paying money directly to that business, we generally call that 'free'.
- makomk 5y ago
  The existing retail brokers were also, with very few exceptions, selling trading requests on top of the fees they charged. (Also, in general this actually results in better-than-market prices because the trading firms know that retail traders aren't likely to have information they don't and aren't likely to be making large market-shifting trades, so they can relatively safely make money by market making between people who want to buy and people who want to sell at slightly different times.)
- cjpearson 5y ago
  That would be front-running and it's illegal. The article you linked explains what PFOF is, but in general there's nothing wrong with market makers fulfilling brokerage orders. It means traders get a better price on their order and the market makers earn a profit. The concern is that when market makers share that profit with brokerages they encourage brokerages to select the market maker that gives them the biggest cut rather than the one who gives the best price for the trader. Still, the trader will never get a worse price than what's available on the exchange. (That's also illegal.)
- gruez 5y ago
  >It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. That's literally not payment for order flow works, and it's illegal under regulation NMS.
- 5y ago
dmoy 5y ago
Nobody moved to remove the cost of trades until after IBKR in 2019. The large brokers more or less did not care when robinhood did the same thing years and years and years ago.

pfisch 5y ago

There have been brokers like that for at least 15 years. Zecco was doing it back in like 2006.

emteycz 5y ago
Yeah, it is standard in Europe for at least the whole last decade.
- md_ 5y ago
  Note that it's illegal in the UK and being scrutinized in the EU: https://www.ft.com/content/3254a7c5-3c9b-468c-9ed4-a324f5e42474 https://www.ft.com/content/3254a7c5-3c9b-468c-9ed4-a324f5e42....
  - emteycz 5y ago
    Yeah, another example of the "great" EU "helping" the people...
    - md_ 5y ago
      Agreed; it's disappointing that the UK beat them to banning it.

sniperjzp 5y ago

It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. The more transactions, the more they earn. - https://fortune.com/2020/07/08/robinhood-makes-millions-selling-your-stock-trades-is-that-so-wrong/ https://fortune.com/2020/07/08/robinhood-makes-millions-sell...

thebean11 5y ago
All brokerages do this. RH started charging $0 + (selling order flow) while everyone was charging $5-10 + (selling order flow). For smaller trades that's charging 99+% less than their competitors at the time..
AdamN 5y ago
That's still 'free'. Every business makes money somewhere and when you're not paying money directly to that business, we generally call that 'free'.
makomk 5y ago
The existing retail brokers were also, with very few exceptions, selling trading requests on top of the fees they charged. (Also, in general this actually results in better-than-market prices because the trading firms know that retail traders aren't likely to have information they don't and aren't likely to be making large market-shifting trades, so they can relatively safely make money by market making between people who want to buy and people who want to sell at slightly different times.)
cjpearson 5y ago
That would be front-running and it's illegal. The article you linked explains what PFOF is, but in general there's nothing wrong with market makers fulfilling brokerage orders. It means traders get a better price on their order and the market makers earn a profit. The concern is that when market makers share that profit with brokerages they encourage brokerages to select the market maker that gives them the biggest cut rather than the one who gives the best price for the trader. Still, the trader will never get a worse price than what's available on the exchange. (That's also illegal.)
gruez 5y ago
>It’s looks like free but it isn’t, RH makes money by selling trading requests to high frequency trading firms like Citadel, which buy/sell before the actual order in a better position so they can earn a penny from selling to or buying from you. That's literally not payment for order flow works, and it's illegal under regulation NMS.
5y ago

dmoy 5y ago

Nobody moved to remove the cost of trades until after IBKR in 2019. The large brokers more or less did not care when robinhood did the same thing years and years and years ago.