Re:Robinhood was indeed too good to be true
by klipt on Wednesday December 23, 2020 @12:10PM
(#25519680)
> this is exactly what every single other free brokerage does
Kind of, but the article specifically mentions that Robinhood is getting 4x more money than the industry average, in exchange for giving users worse prices:
> Typically, the SEC found, payments for order flow equal about 20% of the average price improvement that investors realize on their trades. But Robinhood insisted on receiving what amounted to 80% of the improvement: 4 times the customary level.
> When Robinhood made that demand, the principal trading firms with which it was negotiating informed the company that something had to give. If Robinhood were to take that much of the proceeds for itself, then “there would be less money available for the principal trading firms to provide price improvement for Robinhood’s customers.” In other words, Robinhood explicitly was informed that more for it meant less for its customers. The company accepted those terms.
Kind of, but the article specifically mentions that Robinhood is getting 4x more money than the industry average, in exchange for giving users worse prices:
> Typically, the SEC found, payments for order flow equal about 20% of the average price improvement that investors realize on their trades. But Robinhood insisted on receiving what amounted to 80% of the improvement: 4 times the customary level.
> When Robinhood made that demand, the principal trading firms with which it was negotiating informed the company that something had to give. If Robinhood were to take that much of the proceeds for itself, then “there would be less money available for the principal trading firms to provide price improvement for Robinhood’s customers.” In other words, Robinhood explicitly was informed that more for it meant less for its customers. The company accepted those terms.