Stocks Order Routing and Execution Quality
When you buy or sell stocks on Robinhood, like many other brokerages, we send 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.
Here are details that shed light on how we execute your orders and our commitment to ensuring a fair order routing system.
Why does Robinhood send orders to market makers?
We send orders to market makers because you can get better execution quality and better prices than if we sent orders directly to exchanges, like NYSE, which charge fees.
To compete with exchanges, market makers offer rebates to brokerages like Robinhood, E*TRADE, Schwab, and TD Ameritrade, among others. These rebates allow us to continue offering you commission-free trading.
Where does Robinhood send orders and how are these decided?
We send orders to a number of market makers, including Citadel, Two Sigma, Wolverine, and Virtu. Consistent with SEC Rule 606, we disclose these market makers and other information here.
We consider many factors (execution quality, speed, etc.) when deciding which market makers to connect with. We also regularly monitor the market makers’ execution quality and performance. For even finer control, we offer limit orders and stop limits, which allow you to name your own price.
What is the execution quality for orders on Robinhood?
Reg NMS ensures your order gets executed at the national best bid and offer, or better, at the time of execution. When measured at the time of routing, our customers’ orders get executed at the NBBO or better. For example, in August 2018, 99.12% of our customers’ marketable orders were executed at the the national best bid and offer or better with an execution speed of 0.08 seconds from routing to execution (for S&P 500 stocks, during market hours).
Is Robinhood incentivized to send orders to one market maker over another?
No. To ensure we have a fair system, we don’t take rebates into consideration when we choose which market maker will execute your orders. Also, all market makers with whom we work have the same rebate rate.
We send your orders to the market maker that’s most likely to give you the best execution quality.
How much does Robinhood make in rebates?
Robinhood earns ~$0.00026 in rebates per dollar traded. That means if you buy a stock for $100.00, Robinhood earns 2.6 cents from the market maker. Other brokerages earn rebates and charge you a per-trade commission fee on top of this.
Why does Robinhood report rebates on a per-dollar basis instead of a per-share basis?
We report our rebate structure on a per-dollar basis because this accurately reflects the arrangement we have with market makers. Even though other brokerages report rebates on a per-share basis, this doesn’t necessarily mean that their program is structured that way. Typically, there are carve-outs and in some cases, there are different rebates for different stocks and order sizes.
Do you or the market makers front-run orders?
No — front-running orders is illegal.
Do you or the market makers mark up orders?
No. Regulation NMS requires orders to be executed at the best price among all of the exchanges. This “best price” is also known as the national best bid and offer, or the NBBO.
Does Robinhood sell customer data?
No. We take the privacy and security of our customers extremely seriously. We do not, have not, and will not sell customer information.