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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 brin
by colinmhayes 5y 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 5y agoNo, 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 5y 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.