| 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... |
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.