
Robinhood Is Making Millions Selling Out Customers to High-Frequency Traders - dpflan
https://seekingalpha.com/article/4205379-robinhood-making-milliohttps://seekingalpha.com/article/4205379-robinhood-making-millions-selling-millennial-customers-high-frequency-traders
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tptacek
I'm lost. So what? Everybody sells order flow. That's what an internalizer
does. Robinhood takes retail stock-picking trade orders and executes them for
free. _For free._ Schwab charges like $5 a trade. Where's the customer
downside?

Also: "Vanguard steadfastly refuses to sell customer order flow"? Why would
they? They're barely a brokerage at all.

Matt Levine on Citadel's internalizer business and its SEC drama:

[https://www.bloomberg.com/view/articles/2017-01-17/fast-
trad...](https://www.bloomberg.com/view/articles/2017-01-17/fast-trader-
pulled-a-fast-one-on-some-customers)

~~~
freehunter
I'm also stuck at the "so what", but for different reasons. What is order
flow? I'm guessing that the statement "companies pay for your trades" means
they're selling a list of what you trade on and for how much, but what does
that mean and what risks does that expose for me? What benefits do the buyers
get from knowing my trading history?

I feel like the article was written for people who already understand the ins
and outs of trading, which I'm going to guess Robinhood users don't. Is there
an ELI5 of why I should be concerned?

I don't use Robinhood, but I still got nearly nothing from this article other
than the author says he's not a conspiracy theorist, which tends to mean
they're actually pushing a conspiracy theory.

~~~
jsoc815
What _tptacek_ says is pretty much the gist of things.

The issue for some is that because their order(s) are not reaching an actual
exchange, the fill (price @ which the trade(s)) is/are executed may not be the
best, and that meaningful price discovery is hampered.

Both may be correct, however, and I'm loath to say this, the average person
lacks the capacity to really compete for the best fill price on a given trade.
This is due to asymmetries (speed, data, etc.,). And so, generally, they are
as _tptacek_ says, "dumb money," who at best catch and ride a wave.

Anyway, you may want to take a look at the following TD Ameritrade sites on
fills[1] and order execution[2]. They aren't deep dives, just a flavor...

[1] [https://tickertape.tdameritrade.com/trading/stock-market-
int...](https://tickertape.tdameritrade.com/trading/stock-market-
introduction-16061)

[2]
[https://www.tdameritrade.com/trade/orderexecution/inc_faq.ht...](https://www.tdameritrade.com/trade/orderexecution/inc_faq.html)

------
sofaofthedamned
[https://news.ycombinator.com/item?id=17956740](https://news.ycombinator.com/item?id=17956740)

Dupe

~~~
harryh
Warning for those clicking through to that thread. There are many many
comments about front running that are 100% wrong.

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perennate
At [https://investor.vanguard.com/investing/online-
trading/order...](https://investor.vanguard.com/investing/online-
trading/orders), if you follow the "View the quarterly reports" link, it shows
that Vanguard routes orders to these companies: Citadel Securities, VIRTU
Americas LLC, G1 Execution Services, UBS Securities LLC, Susquehanna Capital
Group, Citigroup Global Markets.

It also says "Vanguard Brokerage does not receive compensation for directing
order flow in equity securities".

But the SeekingAlpha article criticizes Robinhood for routing to Citadel,
calling it a "market makers that also have high frequency trading arms". So
Vanguard routes to similar companies, but doesn't receive compensation? That
doesn't really seem better for the customer to me. What am I missing?

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prklmn
Full article: [https://outline.com/xN5HTG](https://outline.com/xN5HTG)

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blondie9x
Good find. Thanks for posting this. Just closed my account with Robin Hood.
Hadn't used it for awhile but this puts the cherry on top. I always felt that
when investing with Robin Hood the fill price was terrible. This confirms why.

~~~
Hnrobert42
The last few paragraphs contain the “so what?” Even so, it doesn’t really
explain. It just says that HFTs exploit their retail customers. Does anyone
know how?

Your comment implies maybe the benefit can be found in unfair bid ask prices.
Are they doing something like: 1\. Buy their own shares of xyz. 2\. Execute
your buy order. Which drives up the price per share fractionally. 3\. Sell
their shares of xyz.

This is total speculation. I have no expertise in this area.

~~~
blondie9x
Yes very similar. By knowing the orders Robin Hood sells to the HFT firms
prior to execution they are better able to exploit the market bid and ask
sizes and orders and Robin Hood customers could end up with worse fill prices

~~~
tptacek
And that's different from all the other retail brokerages, which charge
trading fees _and_ route their orders to Citadel like everyone else does, how?

Also, what kind of trading are you _doing_ with Robinhood where you're
sensitive to the theoretical 1-2 cents this supposed Citadel trade is taking
out of your hide? Would you be happier if Robinhood just charged a 2 cent
trading fee?

