Isn't this the entire idea behind Robinhood? Obviously, they make money elsewhere (from interests on deposits?) but hasn't it been clear for years that they were getting paid by internalizers for order flow?<p>Whoever you use to place stock market orders is also getting paid the same way. People have a funny idea of what a retail brokerage does. They do not execute orders on exchanges for you; that's a specialized capability that long ago became its own kind of company. Retail brokerages specialize in picking up the phone when you call with a complaint or request, and in advertising to acquire users.<p>You shouldn't care. The reason your order flow is valuable isn't that Citadel is trying to screw you. Rather, they can (occasionally) quote you better prices than they do the market as a whole, because they know you're not a giant investment bank or hedge fund about to roll over them like a freight train with a giant block order that will demolish every level of the order book. Internalizers can essentially arbitrage the difference. They're required by law to meet or improve the NBBO.
this article is extremely misleading, creating what essentially is a fake controversy. I highly recommend reading this SEC guide to understand how it really works.<p><a href="https://www.sec.gov/reportspubs/investor-publications/investorpubstradexechtm.html" rel="nofollow">https://www.sec.gov/reportspubs/investor-publications/invest...</a>
This is called pfof. Pay for order flow. It's very common practice to sell retail flow or exhaust flow to the likes of citadel and a dozen others.<p>The buyers make money by either taking the spread on an order, reducing risk in their own portfolio or using the order to create impact and internalizing the tail.
As someone that paid $25,000 in options commissions in 2015 even after negotiating down to 50 cents/contract and no ticket charge, free options trading in exchange for my trade data is a fair trade<p>Now if only they'd give the option of Portfolio Margining instead of just Reg-T margining, I'd let the HFT's pair-program with me in person.
As usual, Matt Levine provides great comments on this: <a href="https://www.bloomberg.com/amp/view/articles/2018-10-16/carl-icahn-wants-to-fight-dell-again" rel="nofollow">https://www.bloomberg.com/amp/view/articles/2018-10-16/carl-...</a> (second section)
At the beginning of the article, the authors cite 3 anonymous sources:<p>> ... according to three people with knowledge of the matter, who asked not to be identified because the details are private...<p>Then, the end of the article mentions 3 VCs:<p>> Two venture capitalists, speaking on condition of anonymity because the discussions were private, expressed concern that Robinhood's ties to high-frequency traders might undermine its image and stymie expansion plans. A third said it was the reason he didn't invest.<p>I wonder if this article is the product of some VC sour grapes.
Check out Robinhood’s Co-Founder’s blog post here <a href="http://blog.robinhood.com/news/2018/10/12/a-letter-from-robinhood-co-founder-amp-co-ceo-vlad-tenev" rel="nofollow">http://blog.robinhood.com/news/2018/10/12/a-letter-from-robi...</a>
I was under the impression that retail order flow is mostly useless to HFT and they make money on large institutional moves - retail investors just don't affect the market enough for it to matter.<p>Is that a wrong assumption? If not, seems like maybe RH is just taking advantage of the rebate for not much benefit to Citadel?
Hmm, I'm assuming this is illegal (otherwise someone would likely be doing it) but why doesn't a high frequency trading firm make a competing application and just keep that order flow for themselves? Why not vertically integrate?
Freetrade[1] is a crowdfunded European alternative to Robinhood.<p>[1] <a href="https://freetrade.io/" rel="nofollow">https://freetrade.io/</a>
Robinhood locked me out of my own account because I was "traveling too long"; demanded I show them proof of US residence (my verified Chase Bank account and US passport aren't good enough). I'm not surprised they're hurting the little guy.
ProTip: use LIMIT/STOP orders when buying and selling. Sending MARKET orders to Robinhood guarantees you going to get a "worse" price compared to the spot price.
I'm not sure I completely understand this article, but I'd like to take this opportunity to rant about my recent experience using Robinhood. Two weeks ago I noticed that Tesla stock dropped significantly after the SEC's investigation into Elon Musk's "funding secured" tweet led to Elon being ousted as chairman of the board. I thought the stock would recover from this, so I placed a market price order for TSLA shares on Sunday night (September 30th). Indeed, on Monday the stock rose +17% but lo and behold, my order never went through. The reason given was that the stock price had supposedly changed by at least 5% by the time the market opened. I suspect this is because Robinhood prioritizes orders from high speed trading firms over its own customers. Is this common practice, and can anyone recommend a service that doesn't do this? Thanks in advance.