As GameStop and other stocks targeted by day traders on the r / WallStreetBets subreddit begin to rise, Robinhood is the popular royalty-free trading platform that prevents users from buying and only lets close sales positions the company became Has been widely criticized for trade restrictions and is now the subject of a class action

Given that Robinhood is central to retail investors pumping Dark Horse stock, it is worth re-examining how to make money: by selling users’ trades to other large companies before doing so They Actually Run These companies make money by effectively seeing what Robinhood’s retail investors are going to do before they actually do it and acting accordingly. These companies are basically buying information which then informs their own businesses

In the past few years Robinhood has done a lot of energy marketing itself as a result of the Occupy Wall Street movement and advocates the mission to “Democratize finance for all. The reality, however, is that this rhetoric detracts from the fact that it is actually helps to maintain the status quo – namely by transforming its customers (but especially their orders) into products

The secret to Robinhood’s success (and profitability) is simple: paying for the flow of orders To make sure trades are commission free, trades are sold to “market makers” or big companies like Citadel Securities – Robinhood’s largest client, who tried to save Melvin Capital after its gamestop shorts cost billions market makers execute these trades (sometimes at a lower rate) and can use their privileged position to put themselves in the middle and make profits. that with this agreement, more trades and more volatility are more available for companies like Citadel. Here the Financial Times explains how it works:

Citadel Securities pays tens of millions of dollars for this flow of orders, but makes money by automatically taking the other side of the order and then returning to the market to flip the trade.There is the difference between the buy and sell price, called what is called Spread, a

Easy access to the market against a backdrop of wild price swings has resulted in higher trading volumes for stocks and options this year, and increased the commodity that Citadel Securities uses to make profits. At the same time, the rise in volatility has further tightened spreads and potential income for market makers increased

Market makers like Citadel are supposed to be honest traders looking for the best price on orders, whether they internalize the order themselves or bring it to market.Unfortunately, Citadel hasn’t always done so in 2017, the SEC fined a $ 22 million versus Citadel for their algorithms messing up the retail investors whose order flows it was buying “A strategy known as FastFill immediately internalized an order at a price that wasn’t the best price for the order Citadel Securities was watching “the SEC noted.” The other strategy, known as SmartProvide, placed an order on the market that was not priced so high that it immediately got the best price that Citadel Securities observed “

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Payment for order flow wasn’t invented by Robinhood (that honor belongs to Bernie Madoff), but the company’s technique differs from others who use it in the industry in that it calculates a percentage of the order spread in 2020 Paying the flow of orders turned the company into a killer: In the first quarter, the company had sales of 90 million US dollars (70 percent), in the second quarter it doubled to 180 million US dollars

Paying for the order flow is a wonderful system that makes a lot of money for everyone except the consumer

In December, Robinhood was fined $ 65 million by the Securities and Exchange Commission for making “misleading statements and omissions in customer communications” about its revenues, particularly in payment for the order flow process, according to The SEC found that customers were led to believe they were getting the best possible price for their orders, but were in fact “withheld” a total of $ 341 million because Robinhood chose to place their orders with companies that did the Companies would bring higher revenues than the best prices for customers

“If the service is free, you are the product Robinhood users felt the service was accountable to them, but in fact it exists to serve huge Wall Street institutions like Citadel and other market makers “JE. Karla, editor of the business newsletter Contention, told Motherboard, “They are going to bomb their own business models themselves to protect the real powers from the consequences of their internal contradictions. When a system approaches a final crisis, its institutions break their own rules to elements That is exactly what is happening here. This particular episode may be over in a week or two, but it is a symptom of something very ominous “

While the GameStop stock saga has largely been viewed as a case where the “little guy” (insofar as day traders with money can be considered “the little guy”) returns to big finance players, the reality is more complicated the financial system has lots of moving parts, and Robinhood’s day traders imagining themselves as literal Robinhoods are really just the be-all and end-all of a bigger mill, it’s worth noting that the giant companies that own the majority of GameStop stock are likely to be ahead regardless of what profits a few day traders make at GameStop

Robinhood may bill itself as an app for the little guy, but perhaps more than any other, its platform is a great reminder that the stock market is a casino – meaning you can’t forget the house always wins

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Citadel

World News – USA – Robinhood’s clients are hedge funds like Citadel, the users are the product

Source: https://www.vice.com/en/article/qjpnz5/robinhoods-customers-are-hedge-funds-like-citadel-its-users-are-the-product