I actually wrote about the selling of flow this morning here: https://news.ycombinator.com/item?id=8355210
They make it hard to find but the trail goes like this:
From here: https://www.robinhood.com/legal/
Open this document:
https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
Which links to this document, which contains the details.... http://public.s3.com/rule606/apex/APEX_2Q2014_Rule606.pdf
Note this:
> 1 Apex receives payment from Knight Capital Americas LLC. (Knight) for directing order flow. Payment varies based upon a number of factors including but not limited to: Size of the order, time of order placement, whether an order is marketable at the time of order entry, the underlying price of the security and any special handling instructions. Payments received from Knight averaged less than $0.0025 per share for the period 2Q2014.
> 2 Apex receives payment from LavaFlow ECN for orders that add liquidity to LavaFlow and are subsequently executed. The rate for adding liquidity to LavaFlow was $0.0032 per share. APEX is charged for removing liquidity from LavaFlow The rate for removing liquidity from LavaFlow was up to $0.0035 per share.
> 3 Apex receives payment from Credit Suisse for directing order flow to Credit Suisse. Payment varies based upon a number of factors including but not limited to: Size of the order, time of order placement, whether an order is marketable at the time of order entry, the underlying price of the security and any special handling instructions. Payments received from Credit Suisse averaged less than $0.0025 per share for the period 2Q2014.
Holy shit, their order flow is 70% market orders? That cant' be right. Funds must be throwing money at these guys to buy their flow.
I don't want to sound like Jim Cramer but people please don't use market orders!!!!
It happens alot, and since these guys came from the industry it wouldn't be a large logical jump to conclude they are taking money from a fund that wants to trade against their uninformed flow they generate.
Its scummy if true, but it happens. If you aren't a hedge fund then your trades are being sold:) Heck half the time if you are a fund your flow is also being sold:)
Alternatively they have some sketchy fees which you can see here:
https://brokerage-static.s3.amazonaws.com/assets/robinhood/l...
No fee to transfer money into them but a fee to get your money out is a big red flag. Hello Hotel California!
EDIT to explain scummy, its because it allows the big funds to "jump the queue" if you will. Scummy may have been a poor choice of words.
Rather than having to be active in the market with a quote on the NBBO, this allows the big funds to look at each order and say, pass, pass , take, pass, take, etc.
If there is money in filling the order they will, if not they will pass it onto the market where it will either sit or get filed by those who actually participate in the market.