The app experienced major outages in March as markets were roiled by the pandemic, leaving customers unable to trade during some of the biggest price swings in history. Of the report, a Robinhood spokesperson said, “We strive to maintain constructive relationships with our regulators and to cooperate fully with them.” Is Robinhood reliable? This year the Wall Street Journal reported that Robinhood’s payment for order flow practices are under investigation by the Securities and Exchange Commission. Last year, Robinhood was hit with a fine related to getting its customers the best deals for their trades. Others argue that trading is cheaper than it has ever been, and say customers are getting better deals. Some officials worry that paying for orders incentivizes brokers to send stock trades to the market maker that pays them the most, rather than giving users the best trade execution. (You can read more about it here and here.) But while US regulators seem to have blessed the practice, it remains controversial. Just about every big US retail broker, from Schwab to TD Ameritrade, makes money on order flow, a practice that goes back decades. As James Angel, a professor at Georgetown University, told Quartz: “You really don’t want to be playing poker with people who are better than you are.” The HFTs pay to sit at the amateur table. In other words, retail customers are fresh, red meat. It’s also less risky: When trading on a public exchange, market makers have to compete with other sophisticated traders, as well as large investors who may buy or sell large chunks of shares, sending shockwaves through prices. Retail and institutional trades may flow in opposite directions, which is great for market makers who can provide bids to buy for one and offers to sell for the other. The everyday investor is less informed and trades differently than the pros who, in theory, move in and out of assets more efficiently. (Other factors, like the advent of fractional share trading, and stay-at-home orders as a result of the pandemic, have also given trading a boost.) Robinhood had more than 4.3 million daily average trades in June, more than all the other brokerages in this chart. Last year was no exception-commissions went away and trading volumes blew up. And each step of the way, as trading costs go down, trading volumes have tended to go up. (In the 1990s, Schwab charged as much as $80 for a trade through a live broker last year the company eliminated commissions). In fits and starts, US stock trading has become more electronic and automated over the decades, and in doing so it has also gotten cheaper.
Charles Schwab is snapping up TD Ameritrade, while Wall Street titan Morgan Stanley set its sights on E-trade.Ĭonsistent sales pitches aren’t the only long-term trend.
As commissions evaporated, profits took a hit, setting off an acquisition spree, with bigger fish gobbling up smaller ones. Late last year, Robinhood helped spark a price war between the other big-time retail brokers.