Why ‘Free Trading’ on Robinhood Isn’t Really Free

Discussion in 'Retail Brokers' started by Altavest_Erik, Nov 9, 2018.

  1. Supporters of the practice say that routing orders to speedy traders benefits individual investors, because they can get better prices than they would at the New York Stock Exchange or Nasdaq.

    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. Unlike E*Trade, Charles Schwab Corp. and TD Ameritrade Holding Corp. —which also take payment for order flow—Robinhood doesn’t publish data on how much price improvement it gives customers.

    The upshot: When you buy or sell shares on Robinhood, the app is likely executing your trade at a slightly worse price than another broker would, market veterans say.

  2. zdreg


    where are these contra-parties located?
  3. Of course not.

    Nobody can stay in business "giving everything away for free". They gotta make money somewhere.... spreads, mostly.

    The "true cost" of a financial transaction = commission + spread + slippage.

    I once looked into the "cost" difference between the SPY and the ES futures. Turns out, the ES trades about 10x the $$ value of the SPY each day. The primary difference is "slippage".
    Last edited: Nov 9, 2018
    cdcaveman likes this.
  4. d08


    People are ignorant, they don't care. They think RH makes all their money from interest.
  5. zdreg


    my guess is that Robin Hood appeals primarily to millinneals. the magic word in their vocabulary is a four letter word free and the remaining details in disclosure documents are not worth looking at.
    dealmaker and cafeole like this.
  6. zdreg


    where are the numbers? anecdotal stories by "market veterans" is not statistical proof.
  7. Look if your investing and holding....why bother with small slippage.. it's what makes a market different perspectives, time horizons etc...
  8. d08


    There's no statistical proof as they don't release the numbers.
    But the fact that RH gets paid way more for order flow compared to competition tells you that they screw the customers the most.
  9. zdreg


    more per share?
  10. d08


    #10     Nov 9, 2018