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 typically offer better prices than public exchanges. To compete with exchanges, market makers offer rebates to brokerages like ours. Rebates are one of several revenue streams that make it possible for us to provide a range of financial products and services at low cost, including commission-free trading.
Here’s how we route your orders and ensure a fair order routing system.
How does Robinhood decide where to send orders?
We have relationships with a number of market makers in an effort to optimize speed and execution quality. Our routing system automatically sends your order to the market maker among these that’s most likely to give you the best execution, based on historical performance.
We perform regular, rigorous reviews of the market makers’ execution quality by looking at factors like execution price, speed, and price improvement. For even finer control, we offer limit orders, stop limits, and trailing stops, which allow you to name your own price.
Consistent with SEC Rule 606, we disclose these market makers and other relevant information here.
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 have relationships pay us rebates at the same rate.
How does Robinhood structure the rebates it receives from market makers?
We earn a percentage of the bid-ask spread at the time of execution.
Do you or the market makers use high-speed technology to trade ahead of Robinhood orders?
No. This practice, known as front-running orders, is illegal.
Do you or the market makers mark up orders?
What is the execution quality for orders on Robinhood?
When measured at the time of order routing, the majority of our customers’ orders get executed at the NBBO or better. For example, in the third quarter of 2020, 97.53% of our customers’ market orders for S&P 500 stock were executed at the NBBO or better, with an execution speed of 0.065 seconds from routing to execution (for orders during market hours under 2,000 shares; excludes orders in locked, halted, or crossed markets).
What is spread?
Spread is the difference between the highest price to buy the equity (bid) and the lowest price to sell the equity (ask). Spread is determined by the national best bid and offer (NBBO) published spread.