[FabHK]

Though, to be fair, Robinhood offers reasonably spreads.

They must execute client orders at a price as good as or better than the national best bid offer, if I understand correctly (Reg NMS [1]). Now, the firms that buy that order flow offer better (tighter) prices, an improvement over the NBBO, and what Robinhood does is take a cut of that improvement.

(Robinhood takes a larger cut than other brokers, fair enough, but those other brokers used to charge an additional flat fee. So, for small orders, you're better off with Robinhood, for large orders you're better off with a different broker. Note that this was the behaviour that triggered regulatory action a while ago, and the situation might look different now, given that other brokers also offer trades without commission. Either way, you should get executed at NBBO or better.)

[1] https://www.investopedia.com/terms/r/regulation-nms.asp

[pclmulqdq]

Robinhood's spreads are much larger than many other brokerages because of the deals they make with order flow buyers. Yes, they are still at or better than NBBO, but many brokerages will give you price improvement on crossing orders down to near the midpoint price (unless you are very good at timing the market and already have a great price from crossing).

I did an A/B test of this, and found that RH was actually an outlier in terms of how bad your executions are.

[hef19898]

I always had that little voice in the back of my head, that told me that RH and all the others are just feeding small investors' money to the big ones. I never really figuered out how, selling their order low at worse spreads than others explains a lot of my doubts, so. It also means that I will stay away from those brokers as far as possile. Well, not that I'm a potential client anyway, the only trading I do is with RSU and ESOPs I received over my career using whatever brokerage came with these packages. And then only to sell some from time to time, like once every other year if a all. If I want to gamble, I take ten bucks to the nearest casino's roullette table and have fun or an hour or so.

[FabHK]

Matt Levine has some insight on this [1]. And you're right, Robinhood's price improvement was bad compared to standard brokers:

> By March 2019, Robinhood had conducted a more extensive internal analysis, which showed that its execution quality and price improvement metrics were substantially worse than other retail broker-dealers in many respects, including the percentage of orders that received price improvement and the amount of price improvement, measured on a per order, per share, and per dollar traded basis.

But again, it's a relative issue. For small trades, overall you got a better deal than paying a slightly better price plus a fixed commission. For large trades, nope. So, at Robinhood the rich big traders subsidised the smaller ones. Kind of fitting for the name.

> For most orders of more than 100 shares, the analysis concluded that Robinhood customers would be better off trading at another broker-dealer because the additional price improvement that such orders would receive at other broker-dealers would likely exceed the approximately $5 per-order commission costs that those broker-dealers were then charging.

All in all, I think their model is defensible, but lying about it isn't.

ETA: To be clear, I think their pricing and revenue model is defensible. But: a 10$ fee for a long term trade is also pretty negligible. What Robinhood have democratised is day trading and gambling, and that's not good.

[1] scroll down to "Robinhood (1)": https://www.bloomberg.com/opinion/articles/2021-01-07/the-ip...

[chii]

> democratised is day trading and gambling, and that's not good

why is it not good? I think as long as the person doing the trading understands the consequences of their actions, they should be allowed to make that trade. If you could prove that people are being defrauded into thinking trading is risk free, then the problem isn't with robinhood but with education and awareness, and that issue must be solved at a societal level, rather than placing all responsibility onto the company providing a utility.