It's not surprising that Robinhood gets paid the most PFOF per order of anyone in the industry - if you know what market makers need to succeed. A thread:pic.twitter.com/EnOdRCxasi
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It's not surprising that Robinhood gets paid the most PFOF per order of anyone in the industry - if you know what market makers need to succeed. A thread:pic.twitter.com/EnOdRCxasi
Imagine you're a market maker. You make $ on the bid/ask spread - giving liquidity to traders by buying low & selling high millions of times per day. As long as you can identify profitable trades, the more volume you get the better.
In exchange for skimming $ from the spread, you take on some risk of the market moving against you. If an illiquid stock tanks while you're making a market for it, you end up buying a falling stock with no one to sell it to. That's a no no.
Can you explain “skimming money from the trade”? How much on average can they skim from the different asset classes eg options versus straight equities. Maybe a super simple example with numbers? Thanks!
Sure - these charts show hypothetical markets for a stock and an option. MMs make $ by buying the bid and selling the ask. The stock is very liquid, so the spread bw the bid & ask is tight. The option is less liquid so bid/ask can vary widely. More risk = more space for profitpic.twitter.com/F1SLCpCw4m
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