2020-12-17 — cnbc.com
"One of Robinhood's selling points to customers was that trading was `commission free,' but due in large part to its unusually high payment for order flow rates, Robinhood customers' orders were executed at prices that were inferior to other brokers' prices," the statement added.
The millennial-favored trading app is best known for pioneering the "commission-free trading." Robinhood, and the rest of the online brokerage industry, rely on what's known as payment for order flow as their profit engine in lieu of commissions.
Taking payments for order flow from Wall Street firms is a controversial, but legal practice done by most electronic brokers. For Robinhood, it's the biggest revenue source. Robinhood received $180 million in payments for trades in the second quarter, according to an SEC filing.
The SEC order found that Robinhood provided inferior trade prices that cost customers $34.1 million, even after considering the savings from not paying a commission.
Guess it was actually "robbin' in da hood"...
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