4 ms·

This is what happens when your clients come to realize they're getting screwed in exchange for "free" trades. Search "robin hood order flow".

kareemsabri 4y ago
PFOF is not "screwing" them - it costs on average less than brokerage fees before Robinhood existed. I would venture most people would prefer a bit of a spread on their orders to paying several dollars when they execute a sale.
asdff 4y ago
The vast majority of investors are not trading enough money for these minute scrapings to add up to anything at all. OTOH TD ameritrade et all were charging you $7.99 a trade or whatever hustle they had people forced into previously.
- rchaud 4y ago
  That isn't much money at all for retail customers that any sane financial planner would advise to buy and hold. Or put some into an ETF or mutual find each month. It's mostly an issue with people making multiple trades each day who won't spring for the premium plans.
- gamblor956 4y ago
  Only if you were below the minimum asset threshold, which varied between $500 and $1000 over the past decade. I've used TD Ameritrade for over a decade and haven't paid a fee to them for trades in nearly as long.
foundart 4y ago
There's a detailed and useful description of the order flow market from Bloomberg's Matt Levine at https://archive.ph/kgApm https://archive.ph/kgApm. I don't think it's accurate to say RH clients were getting screwed on order flow. They were getting less of the order flow benefit in exchange for no-fee trades.
colinmhayes 4y ago
Robinhood is legally obligated to provide users with the lowest spread they can find. They make money because market makers are willing to pay robinhood to bring them customers who get the exact same price as everyone else. The market makers do this because they realize robinhood users are schmucks who are more likely to lose money than other investors.
- bidirectional 4y ago
  No, they do it because they know the flow from Robin Hood isn't toxic. It's not about them losing money (market makers hold flat positions, they don't care what happens beyond the immediate future) but about them not being more informed about immediate market moves. If an asset manager wants to buy treasuries for hedging purposes, or an ETF manager wants to buy equities to rebalance, they are also uninformed from the perspective of a market maker.
  - colinmhayes 4y ago
    > market makers hold flat positions They certainly try to, but they do experience some delta in the short run. They are definitely scared of wild swings that happen between them filling an order and flattening their delta.

kareemsabri 4y ago

PFOF is not "screwing" them - it costs on average less than brokerage fees before Robinhood existed. I would venture most people would prefer a bit of a spread on their orders to paying several dollars when they execute a sale.

asdff 4y ago

The vast majority of investors are not trading enough money for these minute scrapings to add up to anything at all. OTOH TD ameritrade et all were charging you $7.99 a trade or whatever hustle they had people forced into previously.

rchaud 4y ago
That isn't much money at all for retail customers that any sane financial planner would advise to buy and hold. Or put some into an ETF or mutual find each month. It's mostly an issue with people making multiple trades each day who won't spring for the premium plans.
gamblor956 4y ago
Only if you were below the minimum asset threshold, which varied between $500 and $1000 over the past decade. I've used TD Ameritrade for over a decade and haven't paid a fee to them for trades in nearly as long.

foundart 4y ago

There's a detailed and useful description of the order flow market from Bloomberg's Matt Levine at https://archive.ph/kgApm https://archive.ph/kgApm. I don't think it's accurate to say RH clients were getting screwed on order flow. They were getting less of the order flow benefit in exchange for no-fee trades.

colinmhayes 4y ago

Robinhood is legally obligated to provide users with the lowest spread they can find. They make money because market makers are willing to pay robinhood to bring them customers who get the exact same price as everyone else. The market makers do this because they realize robinhood users are schmucks who are more likely to lose money than other investors.

bidirectional 4y ago
No, they do it because they know the flow from Robin Hood isn't toxic. It's not about them losing money (market makers hold flat positions, they don't care what happens beyond the immediate future) but about them not being more informed about immediate market moves. If an asset manager wants to buy treasuries for hedging purposes, or an ETF manager wants to buy equities to rebalance, they are also uninformed from the perspective of a market maker.
- colinmhayes 4y ago
  > market makers hold flat positions They certainly try to, but they do experience some delta in the short run. They are definitely scared of wild swings that happen between them filling an order and flattening their delta.