xen0 10 months ago

I highly doubt market makers are in the business of betting against retail traders.

I suspect they're in the business of collecting the spread on lots of small trades that they can assume are largely random.

Reply View 3 replies
  • kortilla 10 months ago

    What you described is how you bet against retail traders. The bet is that they have no edge so it’s safe to run tight spreads and nice pure market making algos that assume random behavior at volume.

    Reply View 2 replies
    • xen0 10 months ago

      Feels weird to call it a 'bet against' when the other side can (potentially) benefit from the tighter spread you offer.

      But yes, the market maker doesn't run the risk of trading with someone with knowledge and a lot of capital to apply it.

      Reply View 1 reply
      • kortilla 10 months ago

        Yeah, I don’t like the phrase either, but market making in these pools is quite literally taking the other side of their trades.

        Reply View 0 replies
graemep 10 months ago

Which means that your cost is market maker's spreads instead of fees. Still a cost to you.

Reply View 4 replies
  • kortilla 10 months ago

    Nope, this is one of the counterintuitive things about people paying RH for order flow. Market makers can offer tighter spreads when they know it’s a pool of dumb money.

    Reply View 3 replies
    • graemep 10 months ago

      tighter spreads are not zero spreads

      Reply View 2 replies
      • kortilla 10 months ago

        What’s your point? The spreads are tighter than you would get on the open market.

        NBBO requires that if there is something better that Robinhood gives it to you.

        Reply View 1 reply
        • eru 10 months ago

          I think the point is that if you trade, you pay the spreads. Market makers can help you pay narrower spreads, but you still pay them.

          If you just hold your index fund, you don't pay these recurring spreads.

          Reply View 0 replies