I keep reading that free stock broker companies make money by selling their “order flows”. How do they make money from this and why is anyone willing to buy “order flows” for more money than just the bid/ask price of each transaction?
In: Economics
* In the case of RobinHood, large wall street firms would not only buy the flows, but also act as the seller to the RH user.
* They would see what the RH user wanted to buy, then they would get it from the market at a better price and then sell it to the RH user at a slight profit.
* If they do enough volume of this, they make a bunch of money.
* This is also called “front-running” and depending on how exactly it’s carried out, might be illegal.
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