The Real Reason Your Trades Aren't Executing at the Best Price
Philipp 10:49 Episode 3 of How Money Really Moves
The Real Reason Your Trades Aren't Executing at the Best Price
Payment for order flow, spreads, and best execution. Where the cost of a 'free' trade is actually hiding.
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Payment for Order Flow Is Not Why Your Trade Costs More
Payment for order flow is the wrong thing to be angry about. When five researchers placed 85,000 identical orders through five brokers at the same second, round-trip costs ranged from 0.07% to 0.46% — but PFOF payments were only $0.001 to $0.002 per share and, in the authors' words, explained 'almost none of the cross-broker variation in execution prices'. What did explain it: who else uses your broker. Market makers quote tighter spreads to brokers whose customers are informed, and wider spreads to brokers whose customers are not.
Full article, with the sources and the numbers →
