The web is ablaze with concerns about stock trading company Robinhood receiving potentially millions of dollars in payments for selling its customers’ orders to high frequency traders (“HFTs”). Robinhood is a stock-trading platform with a large millennial base who were drawn in by the promise of commission-free trading. Recent government filings reveal that Robinhood is selling HFTs order flows and receiving up to ten times more than other trading companies do. The act of selling order flows to HFTs can be considered toxic to average investors—otherwise called retail investors—because HFTs are, in effect, granted an advanced look at which market orders are going to be affected, helping HFTs decide whether to buy shares at a lower market value, or decline to trade with investors whose order is moving with the market.
Given HFTs affinity for purchasing Robinhood’s order flow, Robinhood’s execution quality is put into question, as several users have noted. By selling order flows to HFTs, Robinhood is providing a disadvantage to users of its platform who are now trading against the complex algorithms and sophisticated trading software of high frequency trading firms.
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The lawyers at Migliaccio & Rathod LLP have years of experience in class action litigation against large corporations, including in cases involving unfair and deceptive trade practices. More information about our current cases and investigations is available on our blog.