> 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 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.
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.