Even with cgt their still making a nice profit
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It makes up a small proportional of their revenue compared to what Citadel and others pay them for the order flow.
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I believe that the reality is a lot more complicated than this.
I think there was a big risk growing of failure to deliver on all the option contracts that RH users bought. This was exacerbated by cash longs taking shares out of the street custodian name or instructing them not to lend their shares, so that they couldnāt be used by funds to sell short.
Yes it is well discussed that RH customer was Citadel and the product was their users, however what we donāt know is who pulled the strings in the background. It wasnāt only RH but a lot of big brokerage accounts restricted trading on these names around the same time, which coincided with a big drop in many of the relevant shares.
WRT FT. Yes we are told that they donāt engage in payment for order flow, however this doesnāt mean that they are doing their own clearing or acting as market maker. Someone has to clear the trades for FT and that someone can possibly lean on FT as they may have with the other brokerage houses.
If FT can offer a free product, how do they do this. Who wants to do all the clearing for nothing? Despite not being paid by the clearer, there must be still value in this business for someone to do it. Perhaps I am wrong. Perhaps FT discloses that they lose XXX on every free trade in their free accounts.
IMO RH was a tiny player in this, not the real bandit. Its the players behind the scene that dictated the rules of the game and I donāt think that you have escaped them because you use FT rather than RH.
I rather pay for the product that does not sell my data to a strangers on the street.
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Do you use google search or gmail, use facebook etc?
My financial data is more important to me than ads on youtube
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its more nuanced that that.
Itās not your financial data, itās the details of your trade when you make a trade. (your order flow)
You say I donāt want them to know. So instead of possibly paying a few pence more on a transaction you instead pay Ā£9.99 a trade. Very quickly you think this doesnāt make much sense.
WRT to FB & Google - ultimately the end goal is the same. They want to make money out of you - either by getting you to buy stuff you donāt need, or by front running your small retail trades. However I am more happy for Citadel to see my trades as a random number of billions of trades they see than I am about Facebook knowing almost everything about me.
I do agree, we donāt know the true story yet. My point is that the RH model is incredibly opaque and even if it turns out there was nothing nefarious going on and it was a clearing house liquidity issue, there is a real long term problem with even the appearance of a potential conflict of interest, when they rely so heavily on Citadel and others for their revenue. This fact alone has caused the huge backlash we are seeing against RH.
If RH made no money from Citadel and had communicated openly and early about the exact reasons they had to take restrictive action I believe the backlash wouldnāt be anywhere near as harsh.
Freetrade have an opportunity for a transparent sustainable business model with Plus. It doesnāt mean they may never suffer such clearing house issues, itās just if people believe they are genuinely on their side (and why wouldnāt they be of all their revenue is derived from users) then I think people would be more understanding.
I personally would rather spend a small amount to not have my data sold and know a company is truly on my side. Particularly with a financial product.
I donāt say any of this to shill as a prior investor, I think if payment order flow was legal in the UK it could be an incredibly profitable model for Freetrade as RH have shown. However it drastically changes the incentive structure of the company in a way that I think is negative.
Thanks for contributing though, itās an interesting discussion!
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Where did you get Ā£9.99 a trade from?
isnāt that what other UK brokerage platforms charge?
I was under the impression the kick back began when RH restricted their purchase, but not their sale, of the shares. This would only help the shorts out by adding to selling pressure.
Further people are reporting that RH closed out their positions and did so at very poor prices.
I think the people were smart enough to know that their order flow was being sold to pay for the service.
I am not convinced about this. Outside these forums, knowledge of shares in the UK is quite limited and there are stupidly high barriers. I lived in the US for years. Everyone knows where AAPL, MSFT, FB TSLA shares are trading, where the equity indices are. There is no stamp duty of share purchases and children can trade shares so they get involved from a young age. If you look at the top shares traded on FT, a large percentage of them are US shares for a reasonā¦
I think this is definitely an area Freetrade can improve on
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Itās not about whether your trading UK or US stocks itās where the broker is based.
My understanding is that PFOF isnāt legal for any UK based broker after 2012
A very funny story coming out of the Robin Hood fiascoā¦ 
Freetrade now are not allowing to buy either. What was all that you were saying?
No their FX exchange partner has not allowed it. Freetrade are obviously very unhappy about this decision and clearly were trying to get it changed right up to market open so they could serve customers just as they did yesterday all day
Sure. An if Robinhood came out with the same excuse yesterday you would be saying the same thing right?
This proves my exact point. Freetrade are of course susceptible to FX partners or clearing houses making a decision to block trading. I mention this later in the thread.
However, they make money from Plus and not selling to the exact hedge funds shorting GME which created so much suspicion for RH
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Except selling order flow in the UK is illegalā¦so your point is total nonsense.
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