> Robinhood sells order flow

True!

> meaning your trades are executed by a real market maker but with slower fills, larger spreads and more restrictions on trades.

Incorrect. Retail customers who have their orders routed like this obtain instant execution at prices at least as good as, and sometimes better, than the best available price on public markets, and in the case of Robinhood, they also pay zero fees.

In other words, everything you said is wrong. They don't get slower fills, they get tighter spreads, and lower fees. This is strictly good for the retail investors.

The good news is that the broker isn't screwing them.

The bad news is that the reason for that is because the broker doesn't have to screw them; they're uninformed noise traders buying and selling in basically equal measure. The traders buy at $1.001 and sell at $0.999 as much as they want until they're blinded out by the spread, which the broker keeps.

The "savings" being passed along is just a reduction in the portion of the spread that the broker would normally use to protect itself against informed traders.

Most retail brokerages sell order flow to internalizers, so if you're paying fees to trade, you're probably not getting anything back for that money.

Sure, there's only a few companies that control all the flow but paying fees usually results in smaller spreads and faster execution. It also seems to result in better software and support. Maybe not everyone needs it, RH is good if you just buy and hold, but I wouldn't say fees are for nothing.

I don't understand why you believe paying fees "usually" results in smaller spreads. Most of the brokerages you pay trading fees to are doing what Robinhood does, because retail order flow is made to be internalized, and firms like Citadel do a better job of it --- for customers --- than the firms that run the brokerages do; the job of a typical brokerage is to make a pretty web UI, keep some servers running, staff a bunch of brick-and-mortar locations, and answer the phones, and the job of actually executing trades is specialized in a different direction. More likely, the firm you're paying trading fees to is handing your order off to an internalizer, getting rebated for it, and pocketing both the rebate and the trade fee.

It's from my experience and I've heard the same from many others. Maybe better spread is from better speed, and maybe the speed is a result of better software platform. The fees are also negotiable though, and responsive support is good to have and helped when I needed it.

If it was that simple then I find it strange that these brokers don't offer free starter accounts to new users to compete against Robinhood. They must know something we don't about the real value of the company and how much competition they're adding.

"If it was that simple then I find it strange that these brokers don't offer free starter accounts to new users to compete against Robinhood. They must know something we don't about the real value of the company and how much competition they're adding."

Or it just may be an example of how changes don't happen instantly. If they lose enough customers, they may cut commissions, even to zero. As long as it isn't a big problem, they won't.

It seems to me that a lot of brokers are providing an increasing number of commission-free securities, and you also see promotional deals where a new account of sufficient size gets several hundred free trades.