Robinhood Is Making Millions Selling Out Customers to High-Frequency Traders

The issue for some is that because their order(s) are not reaching an actual exchange, the fill (price @ which the trade(s)) is/are executed may not be the best, and that meaningful price discovery is hampered.

Both may be correct, however, and I'm loath to say this, the average person lacks the capacity to really compete for the best fill price on a given trade. This is due to asymmetries (speed, data, etc.,). And so, generally, they are as tptacek says, "dumb money," who at best catch and ride a wave.

Anyway, you may want to take a look at the following TD Ameritrade sites on fills[1] and order execution[2]. They aren't deep dives, just a flavor...

[1] https://tickertape.tdameritrade.com/trading/stock-market-int...

[2] https://www.tdameritrade.com/trade/orderexecution/inc_faq.ht...

Internalizers do the job you might think of as the core brokerage job. They take raw order flow from brokerages, track the actual prices of securities on exchanges, maintain an inventory of their own, and decide where orders should execute. It's an extremely technical job. Citadel is, I think, still the biggest player here?

The most important thing to understand about retail order flow is that it is dumb money. The sharks that market professionals worry about do not as a rule place orders with Schwab or Robinhood. In particular, if you make a market in a particular stock, and an order routed from Robinhood comes in, you don't have to worry that it's a whale moving a giant block of that stock in advance of some fundamental or technical news item you're 2 seconds behind on.

As a result, an internalizer can tune its pricing for retail orders: retail customers get better pricing, because the internalizer can access a better spread (the difference between the lowest price they'll sell for and the highest price they'll buy for).