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What you are describing is market makers, not Robinhood. Quoting directly from the S-1: > Our PFOF and Transaction Rebate arrangements with market makers are

What you are describing is market makers, not Robinhood. Quoting directly from the S-1: > Our PFOF and Transaction Rebate arrangements with market makers are a matter of practice and business understanding and not documented under binding contracts. For the three months ended March 31, 2021, 59% of our total revenues came from four market makers. So 59% of Robinhood's revenue comes from selling PFOF to market makers. I promise you that there isn't some magic altruism on the part of market makers buying the PFOF and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools. This is precisely why there's an entire section dedicated to PFOF regulatory risk in their S-1. It's increasingly a rigged game and rightfully deserves deep Congressional intervention.

gruez 5y ago
> What you are describing is market makers, not Robinhood. Quoting directly from the S-1: Did i claim that robinhood is a market maker and/or participates in market making? I simply explained how market makers are making money in a non-nefarious way and why they might pay robinhood for order flow. > I promise you that there isn't some magic altruism on the part of market makers As explained in my prior comment there's no altruism involved. Retail orders are valuable because they're uninformed/non-toxic >and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools. Why bring in dark pools and "off-exchange"? The whole point of buying orderflow is to execute it yourself rather than letting anyone execute them.
FabHK 5y ago
> If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools. When the broker gives the order to a market maker directly, they can't offer a worse price than the exchanges (national best bid offer). Typically, they offer a better price (=price improvement, a "discount"). Robinhood takes a cut of that discount (and a larger cut than other brokers). The other poster explained why the market maker gives a discount on "uninformed" retail flow compared to the NBBO. I agree that HFT is just a silly game of being faster, and is largely rent seeking and even destroying value. But market making per se is valuable, and pretty competitive, and the spread constitutes the necessary and benign payment for that service. Here's a suggestion: 1. Restrict trading to, say, 4 hours a day, 2 in the morning, 2 in the evening. You could maybe make it such that time zones have partial overlap. 2. During these hours, have an auction every minute, instead of continuous trading. Maybe with stochastic end time (to negate HFT techniques/sniping). 3. Impose a Tobin tax of, dunno, 1 basis point on every trade. Measures such as those might limit the opportunity for profit from silly HFT (like replacing the cable from Chicago to NY by a slightly straighter cable to shave off a few milliseconds).

gruez 5y ago

> What you are describing is market makers, not Robinhood. Quoting directly from the S-1: Did i claim that robinhood is a market maker and/or participates in market making? I simply explained how market makers are making money in a non-nefarious way and why they might pay robinhood for order flow. > I promise you that there isn't some magic altruism on the part of market makers As explained in my prior comment there's no altruism involved. Retail orders are valuable because they're uninformed/non-toxic >and then routing 40-60% of trades off-exchange. If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools. Why bring in dark pools and "off-exchange"? The whole point of buying orderflow is to execute it yourself rather than letting anyone execute them.

FabHK 5y ago

> If it was simple matter of profiting off bid-ask spread: Force those orders through the exchanges instead of through dark pools. When the broker gives the order to a market maker directly, they can't offer a worse price than the exchanges (national best bid offer). Typically, they offer a better price (=price improvement, a "discount"). Robinhood takes a cut of that discount (and a larger cut than other brokers). The other poster explained why the market maker gives a discount on "uninformed" retail flow compared to the NBBO. I agree that HFT is just a silly game of being faster, and is largely rent seeking and even destroying value. But market making per se is valuable, and pretty competitive, and the spread constitutes the necessary and benign payment for that service. Here's a suggestion: 1. Restrict trading to, say, 4 hours a day, 2 in the morning, 2 in the evening. You could maybe make it such that time zones have partial overlap. 2. During these hours, have an auction every minute, instead of continuous trading. Maybe with stochastic end time (to negate HFT techniques/sniping). 3. Impose a Tobin tax of, dunno, 1 basis point on every trade. Measures such as those might limit the opportunity for profit from silly HFT (like replacing the cable from Chicago to NY by a slightly straighter cable to shave off a few milliseconds).