The application rebuffed a US publication’s claims that the company gives preferences to big investors and sells order data over ten times more than other brokerages.
The US-based stock and cryptocurrency trading app Robinhood has refuted a recent Seeking Alpha article that its brokerage policies work in favor of Wall Street companies and to the detriment of app’s users. Robinhood executes client orders at the best available price across any stock exchange, the company has said in a blog post on Tuesday.
Several days ago, Seeking Alpha contributor Logan Kane said that Robinhood “is making millions selling out their millennial customers to high-frequency traders.” Kane analyzed the company’s filing within the US Securities and Exchange Commission (SEC) and compared it to other brokerages. Robinhood rebates look smaller than the other players but the trading platform provides rebate data per dollar not per share like its competitors and, in reality, it makes massive profits, Kane said.
“Not only does Robinhood accept payment for order flow, but on a back-of-the-envelope calculation, they appear to be selling their customers’ orders for over ten times as much as other brokers who engage in the practice. It’s a conflict of interest and is bad for you as a customer,” Kane explained.
Robinhood always eliminates conflicts of interests when executing customer orders and the company has the same payment rate, publicly disclosed to SEC, with its leading execution venues, the trading platform noted.
“This eliminates any incentive to direct orders to a certain execution venue. Robinhood algorithmically routes orders to a variety of different execution venues based on which is most likely to provide the greatest execution quality and price improvement on that order in addition to the NBBO. No other factors impact where customer orders are routed,” Robinhood outlined in a Reddit’s post.
The trading application claimed that it reports rebates per dollar not per share because the number of shares Robinhood’s customers make per dollar is higher than on other brokerages. The company generates less revenue from these policies rather than if it uses rebates structured around shares. Robinhood also denied selling any identifiable data to execution venues.
Started five years ago, Robinhood is a zero-fee trading app for stocks, exchange-traded funds (ETF), and options. In February, it turned to cryptocurrencies after launching a virtual coin trading service, which is available in 19 US states. Currently, Robinhood offers trading in six cryptos: Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Dogecoin (Doge), and. Ethereum Classic (ETC).