Hello, I'm contacting you on behalf of Citadel Securities, I work for their PR agency. The article inaccurately states that Robinhood routes orders to Citadel. Citadel is the hedge fund and Citadel Securities the market maker; they are two entirely separate entities. The references to Citadel should thus be Citadel Securities. Would it be possible to make the necessary corrections please? Feel free to contact me if you have any questions: eleonore.basle@greentarget.co.uk
Ranjan, fascinating piece. Love how you get straight to the bone. You mentioned that Robinhood's secret sauce is their dopamine secreting UX/UI. Would love if you could dissect that in detail in one of your future posts.
The $18,955 number is totally meaningless. To get it, the author just divides the total payment for order flow by the average account size. He fails to take into consideration the number of accounts at a particular broker. So let's say Robinhood doubles the number of similar accounts. Then payment for order flow would also double as would payments per dollar in the average account. Individual accounts haven't become more profitable as the author implies, there are just twice as many of them.
That 18k was a badly constructed statistic. Journalism and statistics seem to mix worse than ever these days. It's completely meaningless to look at the amount made overall per average account size in dollars. That would need to be divided by the total number of accounts to make a valid dollar to dollar comparison. So if RH had, say, 10 million accounts at the time, that 18k becomes 0.18 cents per dollar in accounts overall.
You can see the correct amount of Payment for order flow Robinhood retains by Googling their most recent quarter 606 report. Prior to their class action lawsuit over this issue, they were routing orders strictly to the highest bidder. After they got their hand slapped with a several million dollar settlement, they cleaned up their act and you’ll see in the reports that their order flow is pretty equally distributed with only about $0.45/contract retained on non-marketable limit orders. Only a few brokers like Schwab and Interactive Brokers do significantly better than that on option trading.
The high frequency trading market maker just has to make a spread larger than what they pay for order flow. The $18k PFOF number was absurdly inaccurate and could in no way be feasible. TD Ameritrade actually retains more PFOF at $0.60/contract than Robinhood. However, Robinhood markets your orders to few venues. Interactive Brokers is best because your trade is executed directly on the exchanges unless a market maker can actually do better. IB also gives the trader 99% of the PFOF as price improvement. IBKR, not lite.
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If you’re looking to invest, waste no time, reach out to sealcoindeal @ gmail dot com and I dare say you will be the next success story to bring your friends on board like myself
Thanks, but it doesn't matter. What matters is Robinhood has made their app UI easy and basic, to ensure customers can process their orders fast while Robinhood makes money by scalping the price differences. Win-Win for both parties. I happen to know what I'm doing so I can take $5 and turn it into $5K in just a few days, no joke. I love Robinhood for that ;)
I was writing about day trading for Salon in Atlanta during your Emory days. Just wrote up Robinhood for my current employer. Based on your piece I got it right
After weeks of turmoil and sadness that GToptions brought upon me and my family after I lost GBP110,000. I was introduced to this guys at Geminihacks -.- cohm they are the best and helped me recover all of my funds without any hassle in 48hours, I am so happy doing this because I know how many people would benefit from this useful information.
Entertaining read. I do worry that retail investors are not schooled in how fast liquidity can change. I remember one speculative internet stock I was in back in 1999. I bought a pretty big slug at $8 and it went to $24 over the course of a few months. When I wanted out and went to sell I managed to get something like 1000 shares off but pushed it down from $24 to $16 and change. Then another 1000 shares at $8 and soon it was $2 on it's way to zero. Today I do trade some warrants that feel similar. They can double and triple but when you go to sell there is very limited depth in the market. As long as everyone is in "BTFD" mode they might get bailed out but even your stops won't protect you if things gap down. As a lifelong software analyst I read another buy rating yesterday on some SaaS name where the price target was "24x C2022 revenues" as if it makes sense to say "oh yeah I paid only 24x revenues for this money-losing business." Hello?
"And trading options can be really exhilarating. It gives you much more of the casino rush than buying and holding stocks, or even buying and selling stocks"
Well said; Same is true for drugs, gambling, rash driving etc. I think education and self-thought is what helps going over the edge.
Nice read, thanks for this article Ranjan. I am a novice in this field (, and a RH user!), and while I don't trade options or do day trading using RH, I do buy quite stocks and ETFs through Robinhood. And I don't think I quite understand how RH could make money off it...? Could I please suggest this as a topic for future article? That is, if I am buying 10 stocks of $MSFT for say $100, and sell it for $110 next year, I do get the $100 out of RH. So, where is RH making money?
They don't make as much off stock transactions compared to options. And they make money on each trade, so a single round trip of a highly liquid stock like MSFT might make them a few cents since you're not getting the best possible price on each trade. You probably wouldn't notice those few cents on a $10 per share gain.
Hello, I'm contacting you on behalf of Citadel Securities, I work for their PR agency. The article inaccurately states that Robinhood routes orders to Citadel. Citadel is the hedge fund and Citadel Securities the market maker; they are two entirely separate entities. The references to Citadel should thus be Citadel Securities. Would it be possible to make the necessary corrections please? Feel free to contact me if you have any questions: eleonore.basle@greentarget.co.uk
Two legally separate entities, you mean.
Eleonore is very busy these days.
Ranjan, fascinating piece. Love how you get straight to the bone. You mentioned that Robinhood's secret sauce is their dopamine secreting UX/UI. Would love if you could dissect that in detail in one of your future posts.
Ranjan, this was great. Your story-telling ability is incredible. Always look forward to receiving a Margins update.
The $18,955 number is totally meaningless. To get it, the author just divides the total payment for order flow by the average account size. He fails to take into consideration the number of accounts at a particular broker. So let's say Robinhood doubles the number of similar accounts. Then payment for order flow would also double as would payments per dollar in the average account. Individual accounts haven't become more profitable as the author implies, there are just twice as many of them.
And how do high frequency traders make money if they pay 18k to robinhood for 1 usd order that is routed to them?
That 18k was a badly constructed statistic. Journalism and statistics seem to mix worse than ever these days. It's completely meaningless to look at the amount made overall per average account size in dollars. That would need to be divided by the total number of accounts to make a valid dollar to dollar comparison. So if RH had, say, 10 million accounts at the time, that 18k becomes 0.18 cents per dollar in accounts overall.
You can see the correct amount of Payment for order flow Robinhood retains by Googling their most recent quarter 606 report. Prior to their class action lawsuit over this issue, they were routing orders strictly to the highest bidder. After they got their hand slapped with a several million dollar settlement, they cleaned up their act and you’ll see in the reports that their order flow is pretty equally distributed with only about $0.45/contract retained on non-marketable limit orders. Only a few brokers like Schwab and Interactive Brokers do significantly better than that on option trading.
The high frequency trading market maker just has to make a spread larger than what they pay for order flow. The $18k PFOF number was absurdly inaccurate and could in no way be feasible. TD Ameritrade actually retains more PFOF at $0.60/contract than Robinhood. However, Robinhood markets your orders to few venues. Interactive Brokers is best because your trade is executed directly on the exchanges unless a market maker can actually do better. IB also gives the trader 99% of the PFOF as price improvement. IBKR, not lite.
I started investing in crypto a month ago but I’ve read about and monitored everything about cryptocurrency with keen interest for more than a year now. I invested only a token just to be sure it was real and everything went totally fine. Today I’ve earned more than 900% of my investment by reinvesting with profits made and I’m delighted to share.
If you’re looking to invest, waste no time, reach out to sealcoindeal @ gmail dot com and I dare say you will be the next success story to bring your friends on board like myself
OK so the big question here is, how to profit on all these people making unwise option trades...
Thanks, but it doesn't matter. What matters is Robinhood has made their app UI easy and basic, to ensure customers can process their orders fast while Robinhood makes money by scalping the price differences. Win-Win for both parties. I happen to know what I'm doing so I can take $5 and turn it into $5K in just a few days, no joke. I love Robinhood for that ;)
I was writing about day trading for Salon in Atlanta during your Emory days. Just wrote up Robinhood for my current employer. Based on your piece I got it right
After weeks of turmoil and sadness that GToptions brought upon me and my family after I lost GBP110,000. I was introduced to this guys at Geminihacks -.- cohm they are the best and helped me recover all of my funds without any hassle in 48hours, I am so happy doing this because I know how many people would benefit from this useful information.
Entertaining read. I do worry that retail investors are not schooled in how fast liquidity can change. I remember one speculative internet stock I was in back in 1999. I bought a pretty big slug at $8 and it went to $24 over the course of a few months. When I wanted out and went to sell I managed to get something like 1000 shares off but pushed it down from $24 to $16 and change. Then another 1000 shares at $8 and soon it was $2 on it's way to zero. Today I do trade some warrants that feel similar. They can double and triple but when you go to sell there is very limited depth in the market. As long as everyone is in "BTFD" mode they might get bailed out but even your stops won't protect you if things gap down. As a lifelong software analyst I read another buy rating yesterday on some SaaS name where the price target was "24x C2022 revenues" as if it makes sense to say "oh yeah I paid only 24x revenues for this money-losing business." Hello?
"And trading options can be really exhilarating. It gives you much more of the casino rush than buying and holding stocks, or even buying and selling stocks"
Well said; Same is true for drugs, gambling, rash driving etc. I think education and self-thought is what helps going over the edge.
Nice read, thanks for this article Ranjan. I am a novice in this field (, and a RH user!), and while I don't trade options or do day trading using RH, I do buy quite stocks and ETFs through Robinhood. And I don't think I quite understand how RH could make money off it...? Could I please suggest this as a topic for future article? That is, if I am buying 10 stocks of $MSFT for say $100, and sell it for $110 next year, I do get the $100 out of RH. So, where is RH making money?
They don't make as much off stock transactions compared to options. And they make money on each trade, so a single round trip of a highly liquid stock like MSFT might make them a few cents since you're not getting the best possible price on each trade. You probably wouldn't notice those few cents on a $10 per share gain.