[nprz]

Zero commission trade is actually bullshit anyway. You end up losing more from inferior execution time than you would if you just paid the $5 per trade. Robin Hood also lied to users about this and ended up paying a $65 million fine[0].

[0]https://www.sec.gov/news/press-release/2020-321

[atombender]

"Not charging $5 per trade" implies that other brokerages such as Schwab, Fidelity, and TD Ameritrade — which haven't been penalized by the SEC — suddenly offered poorer order execution when they dropped their commissions, which by all accounts they did not. They all experienced declines in revenue.

What Robinhood did was to lie about their execution. They claimed their trade prices were as low as other brokerages, while in fact being much worse. SEC penalized them for (1) intentionally misleading customers and, in the words of the press release, (2) "failing to satisfy its duty to seek the best reasonably available terms to execute customer orders".

Unlike Robinhood, Schwab, Fidelity, and TDA all have popular real-time trading platforms where order execution quality is crucial.

[kasey_junk]

Lol. You cannot judge your order execution quality as a retail customer. It takes the SEC years of investigation to do that. Its certainly not something retail brokers compete on.

Robinhood lied and should be punished but they were penalized for doing so before other brokers had gone to $0. It remains to be seen what happens at the other brokers now that they are free.

[totalZero]

> Lol. You cannot judge your order execution quality as a retail customer.

If you've traded the same listed securities frequently on various platforms, you certainly can. In terms of speed, PFOF systems can hang on to limit orders that are marketable (ie they cross NBBO), technically not printing them outside the confines but taking their sweet time to make a decision about whether to cross the order or post it to an exchange. And once it goes to an exchange, you can also get a feel for how much of the displayed bid or offer you get on one platform versus another.

[kasey_junk]

You can make a lot of money proving that.

Nanex made a bit of a cottage industry whistleblowing on that sort complaint.

[totalZero]

There's no money in proving that different brokers have varying execution quality, and it's not a regulatory requirement to execute instantaneously. I'm not sure how Nanex figures into it; there's nothing nefarious involved.

If I am in New York and I send a limit buy order to Schwab that is two cents through the offer, Schwab may route my order to a market-maker in Chicago who uses a decision model to either take the other side of my order on the offer, or post my limit order to the exchange with the best offer. Let's say the market-maker doesn't want to sell me the security and routes it to an exchange in Miami. By the time he posts the bid, the offer may have moved and my limit order may no longer be marketable. That doesn't mean Schwab broke the law. Routing orders between computer systems and making risk decisions takes nonzero time, and factors like latency and exchange fees can affect where the order goes and when it arrives.

[kasey_junk]

Let’s be clear are you sending routed orders in this case?

Are you suggesting that limit orders are filling but at a different price than expected or not filling at all?

The reason Nanex is important is that they’ve made bank on proving that risk systems and broker latency don’t matter when enforcing reg nms.

Neither does order volume. If you can accurately track execution to the point where you can see slippage (not on the broker report cards) you can make money on that info.

None of that is to say different brokers don’t have different slippage just that in aggregate if you can accurately calculate it you a) have no business trading through a retail broker (and you know it) and b) there is money to be made in compliance that doesn’t take on trade risk.

[atombender]

The SEC judgement was on Dec 17, 2020. Schwab announced commission-free trading on Oct 7, 2020. IBKR dropped their fees (for IBKR Lite) in September that year.

[kasey_junk]

The judgement was for behaviors between 2015 and 2018.

https://www.sec.gov/news/press-release/2020-321

[cortesoft]

Whether you would be better off with the $5 trade or not is dependent on how many shares you trade at a time.

It wouldn’t have been an issue if Robinhood had been upfront about their pricing. They still would have been a good deal for many retail investors, but they instead chose to lie.

[wtf_is_up]

How is this possible when I use limit orders? (not a robinhood user btw, but pretend I am)

[satellite2]

If, by the time your order reaches the book, there is a better price than your limit, you are entitled to it.

That is the best execution obligations of your broker.

In RH case, their intermediary bought at the better price and resold it to you at your ask, keeping the difference.

[justinsaccount]

from screenshots I have seen lately, I'd bet that at least 20% of RH users have no idea what a limit order is.

[TopInvestor]

The general recommendation is never use limit orders - do not reveal your intention to the other side.

[kasey_junk]

This is terrible advice. if your slippage risk is such that you aren’t protected by NBBO you have absolutely no business on a retail broker of any sort. Meanwhile limit orders minimizes the most likely risk a retail trader has to overcome. Either you don’t understand the advice you were given, you were duped or you are trying to be duplicitous.

In any case, terrible advice to be repeating in the context of retail trades.

[TopInvestor]

I don’t give any advice. I was probing to see the reaction . It is amusing to look at postings glorifying the pundits advice. They are not your friend.

Have you actually placed a limit orders? Do you practice this advice with your own $’s? Do you know how much taxes you pay for a trade considered day trading? If the limit order is executed same day it is considered day trading. What is the point then?

Why retail investors are penalted for that but hedge funds are not? Are you retail trader or on the other side of the table? If so why you are giving advice to retail investors? The motivations? When I used to follow the pundits “advice” they were always wrong - limited orders were immediately executed. These “fluctuations “ causing execution of limit orders are never reported in the historical data . I used to purchase historical data for thousand $’s and never found these fluctuations in the official dat I saw on the screen. Meaning you can never rely on historical data for analysis. If you had the same experience you would know. Learning from practice I’ve different way of making $’s.

[kasey_junk]

I spent years writing HFT trading systems. I’ve built back testing systems that actually worked. I’ve been out of the industry for more than five years and every order I’ve sent since I left (all through retail brokers including RH) have been limit orders.

I’m going to guess that I’ve spent more time in front of a real market feed than you trying to divine how the orders are impacting the book but who knows.

All that said I’d love to subscribe to your newsletter and learn the secrets to why limit orders have a different tax treatment than market orders.

Also for the record market orders tell the market you have no price sensitivity. If your newsletter could tell me how that’s better for retail investors I’d appreciate it.

[TopInvestor]

Got it , just an observer working for the establishment. Why you didn’t invest your own $’s if your algo is so good? Other peoples’ money I know. Is that a real job? HFT is a scam. What about naked short selling (hft by other name )? Making money out of thin air? Selling something you don’t own? You did the hft for that too? What about GME now? 1.8 million missing shares . What your algos will do to the market? Crashing it?

Now the hedge funds are a joke, no? They aren't buying 50 million shares at 30c, nor $100, nor $300, and that's their problem. You can do hft all in nanoseconds - nothing is helping them. PRICE DOESN'T MATTER

How hft algo is helping the hedge funds now? The market will be never be the same , no hft , no newsletters , no apps will save it .

And this isn't a financial advice.

[dragonwriter]

I've seen recommendations to never use market orders; I've never seen one against limit orders.

[TopInvestor]

Just try with your own $ and you will learn from practice. Good luck following recommendations. Practice is the best teacher. Now - do you have thousands $’s to learn from your mistakes?

[ralph84]

Say the national best bid and offer (NBBO) is: Bid: $10.45 Ask: $10.55

You place a limit buy order at $10.55 for 100 shares.

$0 commission broker that sells order flow: Your order is routed to the market maker buying your broker's order flow. They sell you the 100 shares for $10.55 since it's within your limit and within the NBBO spread.

$5 commission broker: Your broker attempts to price improve by searching multiple liquidity sources and gets a hit at the NBBO midpoint: $10.50.

In both cases you paid $5 for the trade.

[kasey_junk]

This is not at all how NBBO works. Effectively all retail brokers sell order flow and if they dont they still dont have any obligation to improve your price beyond NBBO.

[ralph84]

> This is not at all how NBBO works

Open to corrections

> they still dont have any obligation to improve your price beyond NBBO

But those that do price improvement use it as a marketing differentiator:

https://www.fidelity.com/learning-center/tools-demos/trading...

https://investor.vanguard.com/investing/online-trading/order...

https://www.schwab.com/execution-quality

https://www.tdameritrade.com/tools-and-platforms/order-execu...

https://www1.interactivebrokers.com/en/index.php?f=47202#bes...

[kasey_junk]

Schwab, Fidelity, TD Ameritrade & IB all engage in PFOF. They all have free offerings.

Here is what robinhood advertises for their price improvement https://robinhood.com/us/en/about-us/our-execution-quality/

All NBBO improvement requires is that if you send an order through the book you’ll get the best price on NBBO. Even when Robinhood got fined it wasn’t for that, it was for promising better than their competitors and then putting it in writing that they were happy being worse than their competitors.

[pgwhalen]

> Open to corrections

Under the "Robinhood" header of this Matt Levine column is a pretty good explanation of payment for order flow:

https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...