American Consequences - March 2021

So, if Robinhood is basic compared with the traditional houses and does not charge commission, how does it make money? The usual business models for this type of enterprise are in place, from interest made by lending out investors’ idle cash much the same as your local bank does, or with premium accounts that grant a certain level of margin trading. And then there is payment for order flow (“PFOF”). According to a 2018 Bloomberg report, Robinhood makes more than 40% of its revenue from PFOF. And from its website we learn: Robinhood sends “your orders to market makers that allow you to receive better execution quality and better prices. Additionally, the revenue we receive from these rebates helps us cover the costs of operating our business and allows us to offer you commission-free trading.” Ad: This Tech Kills Hackers A new crypto tech could show you bitcoin-like gains by putting identity thieves out of business… and the biggest US employer could make the first move soon. Details here. Instead of orders being processed on a designated contract market exchange, companies like Robinhood make money by directing trades through behind-the-scenes partners that provide the other side to the trade and warehouse that position internally. Consider this... Disney is at or about $195 per share, and you want to buy 10 shares.

restricted the trading on certain Reddit stocks... on the very platform that was party to the recent price swings. This had a rather agog Twittersphere affect with levies of hedge- fund elitism and manipulation purported to help the funds being thrown about. We do need to understand the financial onus that this entire market scenario, especially the short squeeze, could have created... which exposes a problem at the clearing house level. That comes down to the fact that the shares of the targeted short sellers exceeded the total shares outstanding of that particular firm. So as the prices moved higher, the shorts defaulted at their brokerages who needed to cover, causing further upward price movement and put the brokerages in the untenable position of defaulting at the clearing house. Conceivably, the U.S. regulators never could have predicted this scenario, with a short squeeze applying upward pricing pressure on the very groups standing to benefit from a group of non-market fundamental upstarts. –––––––––––– So what makes Robinhood popular? Well, free commissions for starters... but the large broker dealers can also claim the same economics for their clients. Its cachet comes in how it was designed for a generation of mobile platform friendlies... users that could quickly, and from the same device, load up a Spotify tune and order over Grubhub, all while trading on an uncomplicated, no-minimum-balance trading platform, specifically marketed to this demographic.


American Consequences


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