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December 10, 2020 | Predatory Finance Models: Engorging a Few at the Expense of the Weak

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

Selling customer order flow to predatory ‘high frequency’ traders should be illegal; instead, it has become a common, highly profitable practice among broker/dealers.  We become collectively weaker by helping financial predators to gorge on the ignorant and vulnerable.

Robinhood’s trading app designed to entice, addict and take advantage of the poor and unsophisticated is particularly egregious.  In the second quarter, high-frequency trading firms paid $180 million to buy Robinhood’s online trading customers’ order flow.  This was a 17% premium over the average paid to other firms for their customer order flow because Robinhood users are known to be ‘dumber’ and more profitable to front-run.

Read Matt Taibi’s expose Pandemic Villians:  Robinhood.  Here’s a taste:

The obvious problem is that a lot of these younger customers have no clue what they’re doing. “Retail investors don’t understand stocks, let alone options,” sighs Saluzzi. He compares the service to bringing amateur poker players to Vegas and seating them not at a table with old ladies and tourists, but with the best players in town. “It’s throwing them right in with the sharks,” he says.

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December 10th, 2020

Posted In: Juggling Dynamite

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