High-Frequency Traders Love Business With Robinhood
- Stock-trading boom doubles brokerage’s order-flow payments
- Wholesalers give $1.6 billion lift to brokerage clients: Tabb
No one is welcoming the new army of Robinhood day-traders into the stock market more warmly than high-frequency trading firms.
The speed traders -- or electronic market makers, if you prefer labels with less baggage -- pay online brokerages like Robinhood Financial for the opportunity to execute their clients’ buy and sell orders. Many of these come from what traditionally were called mom-and-pop traders, but these days they also likely include a large cohort of bored-stepson-living-in-mom’s-basement traders.
It’s a practice known as “payment for order flow” and is not without controversy. Many critics suspect the reason these sophisticated firms actually pay brokerages to perform this chore for them is because their algorithms are champing at the bit to take advantage of those known in polite company as “uninformed investors” and in impolite company as “dumb money.”
Whatever you call them, one thing is clear: The computer whizzes are willing to pay a premium for orders from Robinhood.