Robinhood vs other brokers and saving money by paying commissions.

by ron_leflore

I see a lot of Robinhood discussion, and I noticed something the other day, so I thought I’d post here.

There’s an SEC rule that says that when you submit a market order, your broker has to either route it to the exchange with the best posted bid/ask or internally match, or beat, the best posted bid/ask. The best price is called the National Best Bid and Offer (NBBO) price.

Robinhood says this:

Please note, all market orders for equities, if filled, receive the National Best Bid and Offer (NBBO) price because our executing brokers are bound by U.S. Securities and Exchange Commision Regulation NMS.

I use Schwab. The other day I entered a market order for about $20k worth of an ETF. I paid a commission of $4.95. Schwab beat the NBBO, saving me about $60 compared to the NBBO. How?

Schwab has a good page explaining.

Why do price improvement opportunities exist?

In the equity markets, all available liquidity may not be displayed in the NBBO. Market participants may choose not to display their orders to avoid revealing their trading interest. To accommodate those traders, securities exchanges and ATSs allow them to post their orders anonymously and not publicly visible (“dark”), away from the publicly displayed (“lit”) quotes. Accessing this better-priced non-displayed liquidity creates opportunities for liquidity providers to improve your executions.

In addition, when executing orders as a market maker, a liquidity provider is often willing to trade at better prices than the NBBO for customers of a firm like Schwab because of their established relationship with us and experience with the nature of our order flow and routing process.

So, Robinhood is great for starting out. Once you are making trades in the $10k range, it probably pays to move to different broker.

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