How Much Does Payment for Order Flow Cost You? We Did an Experiment.
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- čas přidán 29. 11. 2021
- Robinhood's surge in popularity has also renewed discussions around payment for order flow, the method in which many so-called free trading platforms make money. We delve into the topic and run our own experiment.
Any profits from this experiment will be donated to the nonprofit Dow Jones News Fund.
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The narrative is that PFOF gets customers a worse price. But the penny difference in this particular example is to the benefit of the PFOF customer, which she doesn’t even point out
Worse than that, she's talking about the pennys adding up over time. And since the premise is that the PFOF broker is cheating the investor, she's sort of using this trade as a confirmation of that premise when the opposite is the case based on this trade.
The problem isn't with the cost up front it's what's happening behind the scenes where market makers can see your trades and trade ahead of you. You are providing a company millions of people trades so that they can profit in split seconds before they execute your trades. On top of that you are also not trading on the actual market most of the time but in dark pools. So your investment is not making a influence on the price of the stock you are buying. It's being suppressed by never being lit. Try placing a much larger order on Robinhood on a low volume stock at market price. You should see the price go up as you purchase through the "order book prices". This isn't the case because your order is just being sent to dark pools where you have no influence on the actual market. Retail is 100% being scammed and this experiment isn't encompassing the real problems.
Conversely, this causes inaccessible liquidity for institutions on specific underlyings with high retail ownership which increases the cost for institutional investors. This segmentation poses a challenge for the men in suits as well.
The fact that PFOF is still being debated when FREE LIMIT ORDERS are a thing is appalling to me
Why? Thanks
That's a neat experiment, but Fidelity directs 100% of their market orders to market makers such as Citadel and Virtu, even if they don't receive payment for the order flow. It's disclosed in their 606 reports.
Finally someone checking
Bingo!!!!
Great old ads. I am old enough to remember when you could hear a duck quack on the NDB phone trading system.
Aren't those great? It feels ancient now.
Here's a better experiment, try doing a limit price and just for fun try the mid, and even more fun, add in ibkr and Schwab, let's see then
IB use PFOF? and is that good thing? As prices from trading could be worse than NBBO?
They didn’t include the link to your video in the article TD posted. Shocker!!
So RH was a penny cheaper than Fidelity. The latter does not do PFOF. Does that mean Pfof is better than other means of investing?
Great education, to give new investors a crash course 👍
No surprise here. Brokers have to give you the national best bid and offer by law. What I would like to know now is: How does Fidelity make money if not by payment for order flow?
They can lend out your shares because you don't hold the name to the stock
@@jameshamner9905 Okay. That's one option. Lend shares to short sellers. though I am not sure if Fidelity can lend customer shares to short sellers of if it is just their own shares that they must first buy. How does this exactly work?
Fidelity makes money through PFOF. Check their 606 reports.
Its odd... Not once have I ever had robinhood match the listed price to the sale price.
That’s not odd.
I like what you are doing here. Would you be interested in coming on Bulldog Trading for an interview? I'm sure many of the traders we host on a daily basis would enjoy your content. 😊
How can PFOF ever be a benefit to any retail trader when the market maker is intentionally and actively trading against the retail trader
Thousands of orders can happen in nanoseconds even while attempting to execute both simultaneously. You can’t compare execution this way. This video is stupid. It fails in illustrating its point favoring RH.
PFOF isn’t a nefarious practice like everyone would want you to believe. Brokerages that route directly to an exchange still get a kick-back or rebate. So either way, brokerages are getting paid.
You're experiment showed Robinhood filled you at a better price than Fidelity so your conclusions you draw are the opposite of what happened in your experiment you bought at Robinhood for only 20.14 but had to pay for more expensive shares at Fidelity for 20.15 so this experiment no does not tell you how much paymenet for order flow is costing you. According to this experiment it actually concludes you saving money with executing with payment for oder flow