Comments by "" (@jmitterii2) on "Wall Street Millennial"
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If you're trading on Robbin Hood or Webull or even TD Ameritrade and many others, most if not all your orders go to a dark pool exchange, not on the direct NASDAQ or New York Exchange.
It's among their ways they make their money "commission free". They sell your order flow... they get money for sending orders (us to buy and sell stock) to these dark pools to make a market for them.
They also make their money even if some orders get thru to NYSE or NASDAQ, they make money off your limit and market orders by taking both buyers and sellers from their own dark pool (everyone trading on their brokerage) and not initiating on your order unless the price on the NYSE or NASDAQ or dark pool is lower or higher than your limit order. And they really abuse market orders on this bid ask spread.
Example:
Buying:
You have a limit order for ABCDEFG stock for $10.00 on 50 shares. $500.00 order.
They will place you on the order book on their exchange at $10.00. Looks great.
And they will fill that order on the bid at or better so at $10 or less.
Now how they make their money.
They will initiate that order at a few basis points maybe smaller pips = $0.0001 plus or minus your limit order.
So you might not get exactly $10 limit, but an average of it. Or you'll get it at your $10 exactly per share.
But it doesn't get filled until it gets to a certain basis points discount or premium.
One example where you get in right at $10.00 per 50 shares:
They will fill your order when the ask meet to your bid is something like 9.96. So 4 basis points to which they will pocket.
This cost them $498.00
They then fill your order at $10 for the 50 shares, you pay $500.
They collect $2.00 spread.
Selling is similar but in reverse.
You want to sell your 50 shares at $10.00
Limit order is placed. All looks good.
How they make their money on the trade:
Price on the exchange increases just a few pennies (basis points) above $10.00 order is when they will fill the order.
So they sell the 50 shares at 10.04 or for $502.00
They then give you the proceeds of the $500.00 at $10 average price.
They keep the $2.00 spread.
And of course, various exchanges they send your trade or it gets filled by, the exchange pays them a rate of some sort for sending them order flow to build a market. Especially if they're limit orders, this helps make a market for their dark pools for other participants to be able to make better trades (these island exchanges) desire as many as possible to trading as traders on their dark pools want more participants; more participants means tighter bid ask spreads, and exchanges like this as tighter bid ask spreads means more trades are executed. More executed trades for them means more commissions and/or bid spread scalping.
Options require OPRA since 1934 as price distributor.
Participants plug into OPRA and send their bid and ask information to OPRA so OPRA can display in real time or as close to real time to the public... for a fee.
Participant exchanges are many from 4 spin offs of CBOE to Box Options Exchange LLC to Miax Emerald LLC to NYSE American LLC to NYSE Arca, Inc.
By law, you must be able to view OPRA prices between these consortium of exchanges.
Therefore you will always get fees from OPRA and SEC and the exchange you were sent. Webull gets a cut of this action for sending your options trade to NYSE American LLC or whatever exchange filled your order to match with bid/ask.
Therefore Webull doesn't necessarily and doesn't collect a commission; they sold you as market flow to an exchange to give their exchanges a market.
The problem becomes, when you're the product, Webull and the various exchanges they send you to, see all incoming orders and could really roast you on market orders and even limit orders. They could also delay your order, filling others that pay them more money instead of yours first... order flow by law is Price and then time at price of bid/ask.
You might be first to sell 10 cash secured put at $0.10, but some larger broker trading on NYSE American LLC pays a bigger commission or wants to sell more contracts at the same price suddenly.... maybe 50 contracts at that same $0.10. So they'll cheat and let them cut in front of you.
Which can suck, because now the stock price has risen, and the put ask is down at $0.09... nope now $0.05.
Your quick $100 buck premium trade is gone. :( sad.
They could ignore order flow by law, and that can be difficult to contest or know its even happening. And exchanges kind of know this. It's why paying for order flow was considered a taboo unethical thing for so long.
And reality, larger normal orders can actually cost the retail trader more than flat fee commissions and considering trades are executed at the exact true exchange bid/ask price then scalping bid ask spreads... this was also considered immoral as you're not giving them the true bid ask price... point of brokers is to get the best possible price at your limit order.
You just never know how much extra you're paying for your trades. As it's behind the bid ask spread.
They're hiding their fees. And your costs.
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