Robinhood Is Making Millions Selling Out Customers to High-Frequency Traders
Robinhood is marketed as a commission-free stock trading product but makes a surprising percentage of their revenue directly from high-frequency trading firms. It appears from recent SEC filings that high-frequency trading firms are paying Robinhood over 10 times as much as they pay to other discount brokerages for the same volume. Robinhood needs to be more transparent about their business model.
After digging through their SEC filings, it seems that today’s Robinhood takes from the millennial and gives to the high-frequency trader. Not only does Robinhood accept payment for order flow, but on a back-of-the-envelope calculation, they appear to be selling their customers’ orders for over ten times as much as other brokers who engage in the practice. It’s a conflict of interest and is bad for you as a customer.
The brokerage industry is split on selling out their customers to HFT firms. Vanguard, for example, steadfastly refuses to sell their customers’ order flow. Interactive Brokers (IBKR), which is the preferred broker for sophisticated retail traders, doesn’t sell order flow and allows customers to route orders to any exchange they choose.