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Comment by lykr0n | Hacker News Reader

Robinhood's has only two things going for it.

1. It has a massive userbase that most likely doesn't have exposure to the larger financial world

2. They have a large enough user base, where they can route orders through dark pools and HFTs. It's good for the user because contracts have a narrower spread and they can give the user the price they saw when they sold it (vs Schwab, which gives you direct access to the market so you need to set limits)

3kinda. Their App is quite good compared to Schwab.

I'm not sure if either 1 or 2 makes them worth 12 billion, but they did get me free trades on Schwab which was nice.

EDIT. Removed misleading example

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This is wrong. People (Citadel) buy for only one reason. They can make money off of it.

Take a look at this link. Trade execution improved in the UK when they made PFOF illegal. https://www.cfainstitute.org/en/advocacy/policy-positions/pa...

Robhinhood cancels decision to enter UK. https://www.cnbc.com/2020/07/21/robinhood-scraps-launch-of-i...

>This is wrong. People (Citadel) buy for only one reason. They can make money off of it.

That doesn't mean they're making money at your expense. Random hn comment that explained it better than I could: https://news.ycombinator.com/item?id=23774476

No, they are stop hunting.

Care to elaborate?

Sure. The trading is done in lower volume assets like non S&P 500 and Options market. This is actually the orders where Robinhood gets most of its money. Say you put up trades and stop loss and trailing stop loss. These orders are sent to and purchased by Robinhoods customers (Citadel and Virtu). Citadel and Virtu act like dealers. They take the opposite side of your trade and also know where your stop losses are. Because these are lower volume stocks, they can push prices around, force you to sell at a loss and then prices go back to where they were a few moments ago.

https://www.jstor.org/stable/2962317?seq=1

This link describes what is going on.

This happens all the time in forex markets. During lower volume periods, they go after the stop losses. Only market where this doesn't really happen is futures because all trades occur on a centralized exchange.

My recommendation switch to a broker like Tradestation and route your trades through the IEX exchange to avoid getting duped.

Customer orders are tagged in the market (thus available to all participants) due to laws governing market participant behavior. These orders are essentially static, while all other institutional orders with direct market access are fluid. Customer orders are profitable in aggregate in the same way playing professional poker is profitable: a constant stream of less equipped/informed money.

The Uk example you’ve given is terrible. Trade execution at the quotes given (that last 30 seconds) improved. In the uk quoting is done by an RSP but It doesn’t mean the price the customer got in the end improved looking at the main board or dark pools (which you can’t see). They mention it in the conclusion of the PDF.

What it implies is price changes with payment for order flow the order won’t executed and is requoted, whereas where it’s banned there’s no incentive to cancel so you get the quote.

>This is good for them because they might be able to get TLSA at $1599.20 and sell it to the User at $1599.84, and it's good for the user because contracts have a narrower spread and they can give the user the price they saw when they sold it (vs Schwab, which gives you direct access to the market so you need to set limits)

This is not quite accurate. The user doesn't get a better price from a dark pool than they would in the market. They get filled at the market price. It's illegal for it to be higher and Citadel/Robinhood aren't going to leave money on the table by filling it cheaper.

Citadel is willing to pay Robinhood for their order flow because it is less risky and therefore more profitable because Citadel won't end up on the wrong side of a trade. Robinhood uses this money to fund their business and takes any excess as profit.

> The user doesn't get a better price from a dark pool than they would in the market

This is sort of true and sort of not. For an individual trader, it's mostly true.

The law says orders should execute at no worse than the national best bid or offer (NBBO). The NBBO is the best marketed bid and marketed offer. It does not include orders on a dark pool.

A trade executed at NBBO and filled at a better price in a dark pool is perfectly legal and somewhat commonplace. This is what Citadel et al do.

> A trade executed at NBBO and filled at a better price in a dark pool is perfectly legal and somewhat commonplace. This is what Citadel et al do.

Client orders are protected in this scenario by FINRA Rule 5320 - they can't trade ahead of client orders. https://www.finra.org/rules-guidance/rulebooks/finra-rules/5...

> Client orders are protected in this scenario by FINRA Rule 5320

That’s front running. It is illegal.

Market making is done at risk. Citadel fills the client’s order at the NBBO out of its own book. It then turns around and sells stock at the best price it can find, which it hopes will be better than NBBO. (It may not!) This is market making and it’s quite legal.

Lots of the value of RH is their ability to acquire customers at a much lower cost than traditional brokerages.

Do you have proof of 2? That would be a gigantic securities law violation so you should likely cite it.

https://robinhood.com/us/en/support/articles/stocks-order-ro...

https://www.institutionalinvestor.com/article/b1m2p1cv68bx56...

https://markets.businessinsider.com/news/stocks/robinhood-fi...

There's nothing concrete that I can cite, but up until recently they have been doing wonky things with order execution.

Not sure about wonky things, but execution in general is horrible.

Schwab has almost identical order routing policies as Robinhood https://www.schwab.com/legal/order-routing-1

They sell your order flow as well.

But Schwab actually runs a bunch of funds that people invest in, as well as a bunch of other sources of income besides market trades. Hard to imagine that Robinhood is even on the same order of magnitude as someone like Schwab.

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