Tradeview Executives Break Down Zero-Commission Model in US Stocks
Have you
ever wondered how some brokerage firms are able to charge no fees when
executing trades in the US equity market? The recent Finance Magnates London
Summit 2023 (FMLS:23) panel dove into the inner workings of zero-commission
trading in US equities, a model popularized by companies like Robinhood.
Moderated
by Michael Lombardo, the Head of Global Equities at Tradeview Markets, the
discussion featured Marcela Aguillon, the Deputy Director of Trading
Technology, and Carlos Eduardo Ladino Fagundez, the Director of Trading Technology,
both from Tradeview.
The
panelists first established that US equities, unlike FX, cannot be traded on a
B-book model where brokers take the other side of client trades. Doing so would
violate securities regulations. However, brokers like Robinhood utilize “payment
for order flow” (PFOF) arrangements, selling client order flow to
wholesalers like Virtu and Citadel Securities rather than sending it directly to
exchanges.
Michael Lombardo, the Head of Global Equities at Tradeview Markets
Wholesalers
rely on sophisticated algorithms to find hidden liquidity in off-exchange “dark
pools”, allowing them to buy at the midpoint of the National Best Bid and
Offer spread and sell to Robinhood clients at the offer price. This captures
the spread as profit while still providing price improvement versus the lit
market. These fractions of pennies add up across billions of shares daily,
funding the zero commissions.
“The
National Best Bid and Offer (NBBO) in US equities is like the inside market.
It’s essentially the highest price someone is willing to pay to buy a stock and
the lowest price someone is willing to sell it at, quite similar to Forex,”
commented Lombardo.
The Role of Market Data
and Technology Integration
Marcela Aguillon, the Deputy Director of Trading Technology at Tradeview Markets
Marcela
Aguillon emphasized the critical role of market data in trading, detailing
their focus on latency reduction and the integration of C++ for real-time
system development.
“We
chose this language because it allows for control over the hardware and memory
of the servers,” Aguillon commented. “These features are crucial for
developing real-time systems or applications. In our market data tool, we have
significantly reduced latency for stocks.”
Carlos Eduardo Ladino Fagundez, Director of Trading Technology at Tradeview Markets
Carlos
Eduardo Ladino Fagundez highlighted the importance of providing real market
data to customers without markups or retransmissions, ensuring minimal latency.
“Our focus is on providing authentic market data without any markups or
retransmission.”
Weighing the Pros and Cons
From a
retail trader perspective, PFOF delivers zero commissions but is likely not the
best execution since orders aren’t filled at the midpoint. “Are you really
getting the best execution ? Unfortunately, the answer is no,” Lombardo
explained. Wholesalers counter that by aggregating order flow, spreads are
actually tighter.
On the
other hand, PFOF brings more hidden liquidity into the market, which can narrow
spreads. Also, proponents argue it benefits the overall market by keeping
spreads tighter.
From the perspective
of legislation, regulators have sought more oversight given conflicts of
interest. The UK banned PFOF in 2012 and the EU will follow in 2026. The US is
adding regulations like order auction rules and execution score disclosures
rather than an outright ban.
“For
retail traders, it’s important to ask your broker if they pay rebates for
adding liquidity, as it indicates a more sophisticated understanding of the
market. For brokers, exploring technologies like Vulcan for better order
routing and management is advisable,” Lombardo concluded.
What’s Next?
The
panelists discussed proprietary technologies like Tradeview’s Vulcan bridge
which aggregates liquidity across exchanges and dark pools. If fractional penny
pricing emerges from pending US proposals, more price improvement could be
achieved. With market structure continually evolving, brokers and traders alike
must understand models like PFOF and order routing dynamics in the quest for
best execution.
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Have you
ever wondered how some brokerage firms are able to charge no fees when
executing trades in the US equity market? The recent Finance Magnates London
Summit 2023 (FMLS:23) panel dove into the inner workings of zero-commission
trading in US equities, a model popularized by companies like Robinhood.
Moderated
by Michael Lombardo, the Head of Global Equities at Tradeview Markets, the
discussion featured Marcela Aguillon, the Deputy Director of Trading
Technology, and Carlos Eduardo Ladino Fagundez, the Director of Trading Technology,
both from Tradeview.
The
panelists first established that US equities, unlike FX, cannot be traded on a
B-book model where brokers take the other side of client trades. Doing so would
violate securities regulations. However, brokers like Robinhood utilize “payment
for order flow” (PFOF) arrangements, selling client order flow to
wholesalers like Virtu and Citadel Securities rather than sending it directly to
exchanges.
Michael Lombardo, the Head of Global Equities at Tradeview Markets
Wholesalers
rely on sophisticated algorithms to find hidden liquidity in off-exchange “dark
pools”, allowing them to buy at the midpoint of the National Best Bid and
Offer spread and sell to Robinhood clients at the offer price. This captures
the spread as profit while still providing price improvement versus the lit
market. These fractions of pennies add up across billions of shares daily,
funding the zero commissions.
“The
National Best Bid and Offer (NBBO) in US equities is like the inside market.
It’s essentially the highest price someone is willing to pay to buy a stock and
the lowest price someone is willing to sell it at, quite similar to Forex,”
commented Lombardo.
The Role of Market Data
and Technology Integration
Marcela Aguillon, the Deputy Director of Trading Technology at Tradeview Markets
Marcela
Aguillon emphasized the critical role of market data in trading, detailing
their focus on latency reduction and the integration of C++ for real-time
system development.
“We
chose this language because it allows for control over the hardware and memory
of the servers,” Aguillon commented. “These features are crucial for
developing real-time systems or applications. In our market data tool, we have
significantly reduced latency for stocks.”
Carlos Eduardo Ladino Fagundez, Director of Trading Technology at Tradeview Markets
Carlos
Eduardo Ladino Fagundez highlighted the importance of providing real market
data to customers without markups or retransmissions, ensuring minimal latency.
“Our focus is on providing authentic market data without any markups or
retransmission.”
Weighing the Pros and Cons
From a
retail trader perspective, PFOF delivers zero commissions but is likely not the
best execution since orders aren’t filled at the midpoint. “Are you really
getting the best execution ? Unfortunately, the answer is no,” Lombardo
explained. Wholesalers counter that by aggregating order flow, spreads are
actually tighter.
On the
other hand, PFOF brings more hidden liquidity into the market, which can narrow
spreads. Also, proponents argue it benefits the overall market by keeping
spreads tighter.
From the perspective
of legislation, regulators have sought more oversight given conflicts of
interest. The UK banned PFOF in 2012 and the EU will follow in 2026. The US is
adding regulations like order auction rules and execution score disclosures
rather than an outright ban.
“For
retail traders, it’s important to ask your broker if they pay rebates for
adding liquidity, as it indicates a more sophisticated understanding of the
market. For brokers, exploring technologies like Vulcan for better order
routing and management is advisable,” Lombardo concluded.
What’s Next?
The
panelists discussed proprietary technologies like Tradeview’s Vulcan bridge
which aggregates liquidity across exchanges and dark pools. If fractional penny
pricing emerges from pending US proposals, more price improvement could be
achieved. With market structure continually evolving, brokers and traders alike
must understand models like PFOF and order routing dynamics in the quest for
best execution.
Participate in Our Fraud Survey: Your Opinion Matters!
We invite you to participate in our joint survey conducted by FXStreet and Finance Magnates Group, which explores prevalent online financial fraud types, platforms used for fraudulent activities, effectiveness of countermeasures, and challenges faced by companies in tackling such fraud. Your valuable insights will help inform future strategies and resource allocation in combating financial fraud.
Social Media Scams: Help Shape the Fight with Your 2024 Survey Participation
