That at least gives me pause in that it means the market feels like being on the other side of those trades is more valuable for some reason & Robinhood has a disincentive to change it if that reason is “Robinhood’s UX makes bad decisions easy.”
I heard something, I can't remember from where, about the economics of promoting meme stocks --- which Robinhood is guilty of --- but that might just have involved shorting loan fees.
> These firms pay more significantly more for Robinhood’s order flow than they do for the order flow of other firms: an average of 17% more, according to a Bloomberg analysis.
Taibbi has had years to figure this out, but seems utterly uninterested in how any of it works, despite any number of entertainingly readable Matt Levine posts that will explain it in a matter of paragraphs.
When broker-dealers (BD) say this, check their foot notes. The precise statement is something like "80% of market orders are filled with a price improvement relative the the NBBO at the time of execution." That is a super narrow definition of "better". It says nothing about limit order fill rates, improvement rates, or improvement magnitudes.
More importantly, it says nothing about the path of the NBBO midpoint. "Better" needs to be measured relative to the counterfactual where orders are not sent to the BD. The BDs that fill Robinhood orders are all associated with large systematic hedge funds. The hedge funds make directional bets and hold positions overnight, activities that move the NBBO midpoint. That is a seriously suspicious conflict of interest.
If the BD is benefiting from hedge fund research about short-term price movements (probably legal if disclosed to hedge fund LPs), it will harm Robinhood clients. If the hedge fund is benefiting from BD research about retail flows (probably illegal), it will harm Robinhood clients. The data only has to cross the corporate boundary once to be harmful.
The worst thing about this clear conflict is that the BD and hedge fund are the only ones presently capable of measuring that harm. Until the SEC undertakes a systematic analysis, it is inappropriate to call this a "conspiracy theory". The SEC doesn't even have the data it needs to study this question. Weird.