My intuition has always been that the smaller your portfolio, the better deal it is for you to use Robinhood. So it certainly has its place for an underserved class of investors.
isn't this (payment for order flow) regulated by the SEC? specifically, the broker must provide a price that's at least as good as the NMS. so it's not like you're getting a worse price on trades
> Wall Street, where crime is legalized and so none of the suits go to jail
Crime is not legal on Wall Street nor anywhere else in America. If you don't like the laws, we have a system to change them. It seems like you disagree with the finance profession, whose purpose is to efficiently move and allocate capital.
A "controversial" practice, which allows free trades at slightly more expensive prices, that is not illegal, does not mean the entire industry is corrupt.
It's arguable that pharmaceutical rebates are bribery, so is the pharma industry criminal? College football coaches make millions while professors become starving adjuncts, is academia criminal?
I think we can separate issues from describing an enormously essential component of our economy as criminal.
>>which allows free trades at slightly more expensive prices
so they arent free, its priced in. Not criminal, but misleading and could be construed as corrupt.
>> t's arguable that pharmaceutical rebates are bribery, so is the pharma industry criminal?
are the rebates helping to push a drug that they know to be addictive? if its not criminal, it should be.
>> College football coaches make millions while professors become starving adjuncts, is academia criminal?
and college athletes get no pay, but a very "strings attached" education, in which many end up going to bed hungry, which basically amounts to indentured servitude if not slavery
I’ve found that going down the path of being outraged at large fractions of society, such as industries / politics / belief systems, is extremely tiresome and makes you permanently angry at the world. More nuance can give you a healthier outlook, or you risk forever throwing rocks at a mountain.
You arent giving nuance. Your just acting as a contrarian, interpreting the original comment literally, then pedantically responding. thats not helping a discussion
I personally do not think the financial industry, nor wall st in particular, is a bastion of criminality that all of us should automatically hate as educated people.
When people talk about crime being legal on Wall Street, they're referring to the many cases of fraud on the scale of billions of dollars that result in no jail time for the people involved. Sometimes there will be fines, but the fines are significantly less than the amount of money the bank profits from the fraud.
For a couple quick examples that immediately come to mind, see everything that led to the 2008 crash, or Wells Fargo creating checking and credit card accounts without permission.
> they're referring to the many cases of fraud on the scale of billions of dollars that result in no jail time for the people involved
Yes, this exactly is what I meant. Laws are written and passed that legalize what would otherwise be criminal conduct, and on the other side, the SEC will simply levy fines on fraud and no-one goes to jail [1].
Usually the fines, even if it's millions, is just a blimp on the quarterly profits of the wall street entity in question.
> BNP used a network of banks in the Middle East, Europe and Africa with their own clearing codes to mask dollar-based transfers connected to Sudanese companies. Employees also removed information from wire transfers that could have revealed the identity of the countries blacklisted by the United States, according to the complaint.
In this case, BNP Paribas officials at the highest level were involved in laundering money for the Sudanese Government, directly working with Govt officials. This directly translated to funding genocide in the South Sudan war (by way of the Sudanese Govt purchasing weapons and killing people). Yet not a single person went to jail from BNP Paribas. The fine they paid is nothing compared to what they make in yearly profits.
US sanctions or not, I'm sure they did not make $8.9 billion on those transactions.
The Sudanese government could likely still purchase weapons with euros or roubles.
The only situation where sanctions are effective (for now) is when countries need to sell commodities into USD, i.e. oil. But that is also changing as the dollar becomes less of a global reserve currency.
If a Robinhood user thinks they are getting the wrong prices when they buy or sell, then they should seriously contact the SEC because that is illegal (as far as I know the prices aren't wrong).
The reason guaranteed small-scale trade orders are valuable is because they are a way to avoid 'salami tactics' which involve slowly building up to a large order. By the end of a larger order the price will have moved, and the earlier 'sliced' traders will be disappointed.
> The difference is often less than a penny. But it adds up for larger trades. Schwab, for instance, says that for orders of 500 to 1,999 shares of S&P 500 companies, the average savings from price improvement is $10.80.
Ok and Schwab charges $4.95 for trades. So an investor ends up saving $5 per trade. S&P 500 companies stock price ranges from $20 to $1200 so to buy 500 shares of a company with $20 price per share would mean you spend $10000 resulting in a saving of 0.05%. On the other end of the spectrum you spend $600,000 resulting in a savings of 0.0008% assuming that when they say "average savings" they mean "average savings" per trade and not per share.
> average savings from price improvement is $10.80.
I wonder if they lie about this like Fidelity does.
If the market on some product is 100.00/100.06 with a mid price of 100.03, and I route an order at the mid price that is filled at 100.02 that is then a price improvement of 1 cent.
On Fidelity I've noticed they calculate everything off the asking price, and would say my price improvement was .04, which is not really right.
> The opportunity for "price improvement" – which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently quoted publicly
It's measured with reference to the quote, not your order price. Think about it, if you sent a limit order for $20.02 and got filled at $10.02, did you get $10 of price improvement?
> if you sent a limit order for $20.02 and got filled at $10.02, did you get $10 of price improvement?
Yes. That's a rather extreme example, but If I route a limit order for X and get filled for Y, my price improvement is X-Y, not the asking price - X. I guess it depends on if you consider the price of something to be the mid price or the bid/ask price.
As far as I am concerned Fidelity IS lying. The market on the thing could be 100.00/100.10, with a LAST trade price of 100.05. I route a limit order for 100.05 and get filled at 100.05 and fidelity claims I got price improved by 5 cents, which is bullshit.
edit: also, that page you linked and quoted is specifically talking about market orders:
> Here's an example of how price improvement can work: Let's say you enter a market order to sell 500 shares of a stock...
The article links directly to the FAQ, but doesn't mention this which is on there, and I think is very relevant:
How much does Robinhood make in rebates?
Robinhood earns ~$0.00026 in rebates per dollar traded. That means if you buy a stock for $100.00, Robinhood earns 2.6 cents from the market maker. Other brokerages earn rebates and charge you a per-trade commission fee on top of this.
> if you’re trading hundreds or thousands of shares at a time, you’re better off elsewhere
Exactly. Any price improvement other brokerages can offer should be considered net of their fees. Because flat fees per trade are regressive, smaller investors are better off on Robinhood.
Lately it feels like there has been more negative news articles about Robinhood. It's been super popular with the younger investors, and I have a feeling that the larger investment platforms are starting to realize that Robinhood is not a joke, so might be trying to bring up anything that is negative.
You can tell by how there is pretty much zero mention of the fact that this is an industry wide practice which every single brokerage does the strong bias of this article. Except with other brokerages too by the way, they’re also charging you another $4.95 for their “services” they’ve provided.
Now just because payment for order flow is done by every brokerage doesn’t mean it’s necessarily okay to do in my opinion. I have some qualms about it, but the issues are complex. The market makers brokerages route their orders provide liquidity and stability that without their existence would result in a far more volatile market.
This is pretty standard practice, we are able to offer flat-rate comission-free trading here at KloudTrader for the same reason. Cleared through Apex via Tradier. You give up some control over routing and liquidity etc. for zero commission per trade
I discovered this early on. I was using an ultra discount broker at $1 a trade and my friend was with Fidelity. We both placed our orders at the exact same time and he got a price that blew away the difference in commission (hundreds of $ better). After that I moved everything to Fidelity.
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[ 3.3 ms ] story [ 81.2 ms ] threadand then
> But that’s only if the broker passes that benefit, which brokers call “price improvement,” down to the customer.
> It’s unclear whether Robinhood gives customers that benefit
So the customer is not benefiting in this case, yet it's not illegal, just "controversial".
...Like a whole lot of other things on Wall Street, where crime is legalized and so none of the suits go to jail.
Crime is not legal on Wall Street nor anywhere else in America. If you don't like the laws, we have a system to change them. It seems like you disagree with the finance profession, whose purpose is to efficiently move and allocate capital.
Wow, you really are using pedantry to avoid the larger point of the parent post.
It's arguable that pharmaceutical rebates are bribery, so is the pharma industry criminal? College football coaches make millions while professors become starving adjuncts, is academia criminal?
I think we can separate issues from describing an enormously essential component of our economy as criminal.
>>which allows free trades at slightly more expensive prices
so they arent free, its priced in. Not criminal, but misleading and could be construed as corrupt.
>> t's arguable that pharmaceutical rebates are bribery, so is the pharma industry criminal?
are the rebates helping to push a drug that they know to be addictive? if its not criminal, it should be.
>> College football coaches make millions while professors become starving adjuncts, is academia criminal?
and college athletes get no pay, but a very "strings attached" education, in which many end up going to bed hungry, which basically amounts to indentured servitude if not slavery
When people talk about crime being legal on Wall Street, they're referring to the many cases of fraud on the scale of billions of dollars that result in no jail time for the people involved. Sometimes there will be fines, but the fines are significantly less than the amount of money the bank profits from the fraud.
For a couple quick examples that immediately come to mind, see everything that led to the 2008 crash, or Wells Fargo creating checking and credit card accounts without permission.
Yes, this exactly is what I meant. Laws are written and passed that legalize what would otherwise be criminal conduct, and on the other side, the SEC will simply levy fines on fraud and no-one goes to jail [1].
Usually the fines, even if it's millions, is just a blimp on the quarterly profits of the wall street entity in question.
> BNP used a network of banks in the Middle East, Europe and Africa with their own clearing codes to mask dollar-based transfers connected to Sudanese companies. Employees also removed information from wire transfers that could have revealed the identity of the countries blacklisted by the United States, according to the complaint.
Source: France’s BNP Paribas to pay $8.9 billion to U.S. for sanctions violations => https://www.washingtonpost.com/business/economy/frances-bnp-...
In this case, BNP Paribas officials at the highest level were involved in laundering money for the Sudanese Government, directly working with Govt officials. This directly translated to funding genocide in the South Sudan war (by way of the Sudanese Govt purchasing weapons and killing people). Yet not a single person went to jail from BNP Paribas. The fine they paid is nothing compared to what they make in yearly profits.
The Sudanese government could likely still purchase weapons with euros or roubles.
The only situation where sanctions are effective (for now) is when countries need to sell commodities into USD, i.e. oil. But that is also changing as the dollar becomes less of a global reserve currency.
The big banks pay fines for money laundering yet no bankers go to jail.
The reason guaranteed small-scale trade orders are valuable is because they are a way to avoid 'salami tactics' which involve slowly building up to a large order. By the end of a larger order the price will have moved, and the earlier 'sliced' traders will be disappointed.
Ok and Schwab charges $4.95 for trades. So an investor ends up saving $5 per trade. S&P 500 companies stock price ranges from $20 to $1200 so to buy 500 shares of a company with $20 price per share would mean you spend $10000 resulting in a saving of 0.05%. On the other end of the spectrum you spend $600,000 resulting in a savings of 0.0008% assuming that when they say "average savings" they mean "average savings" per trade and not per share.
Just to put the whole thing in perspective.
I wonder if they lie about this like Fidelity does.
If the market on some product is 100.00/100.06 with a mid price of 100.03, and I route an order at the mid price that is filled at 100.02 that is then a price improvement of 1 cent.
On Fidelity I've noticed they calculate everything off the asking price, and would say my price improvement was .04, which is not really right.
https://www.sec.gov/reportspubs/investor-publications/invest...
> The opportunity for "price improvement" – which is the opportunity, but not the guarantee, for an order to be executed at a better price than what is currently quoted publicly
It's measured with reference to the quote, not your order price. Think about it, if you sent a limit order for $20.02 and got filled at $10.02, did you get $10 of price improvement?
Yes. That's a rather extreme example, but If I route a limit order for X and get filled for Y, my price improvement is X-Y, not the asking price - X. I guess it depends on if you consider the price of something to be the mid price or the bid/ask price.
As far as I am concerned Fidelity IS lying. The market on the thing could be 100.00/100.10, with a LAST trade price of 100.05. I route a limit order for 100.05 and get filled at 100.05 and fidelity claims I got price improved by 5 cents, which is bullshit.
edit: also, that page you linked and quoted is specifically talking about market orders:
> Here's an example of how price improvement can work: Let's say you enter a market order to sell 500 shares of a stock...
How much does Robinhood make in rebates?
Robinhood earns ~$0.00026 in rebates per dollar traded. That means if you buy a stock for $100.00, Robinhood earns 2.6 cents from the market maker. Other brokerages earn rebates and charge you a per-trade commission fee on top of this.
Exactly. Any price improvement other brokerages can offer should be considered net of their fees. Because flat fees per trade are regressive, smaller investors are better off on Robinhood.
Now just because payment for order flow is done by every brokerage doesn’t mean it’s necessarily okay to do in my opinion. I have some qualms about it, but the issues are complex. The market makers brokerages route their orders provide liquidity and stability that without their existence would result in a far more volatile market.
Shameless plug: https://KloudTrader.com/Narwhal
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