Robinhood was founded in 2013 and disrupted the industry with Commission Free Trading. But in the fall of 2019, the tables changed when nearly all of the other retail brokers in the United States switched to commission free trading. So with all these other platforms offering commission free trading, does Robinhood still have a viable business model?  The stock market would say no, as their stock is down over 70% since inception. In this article, we are going to do a side-by-side comparison and review of Robinhood vs ThinkorSwim

ThinkorSwim debuted in 1999, and with 14 more years on the scene, plus the bankroll of TDAmeritrade it has become arguably the most robust trading platform for retail traders. The merger with Charles Schwab shows no indication of things changing for the legendary trading platform. So in this episode I taught on YouTube, I compare all of the most important features of ThinkorSwim vs Robinhood. At the end of this article, I will answer the question: “What is the real cost of commission free trading?” Because both these brokers engage in payment for order flow, and as you’ll learn, somebody is paying the cost in this relationship.

Feature Comparison of Robinhood vs ThinkorSwim

Robinhood’s Free Commission Dilemma: Is Their Business Model Still Viable?

I believe 2019 dealt a big blow to Robinhood. Previously when they were the only free commission broker in town people were able to say, well, it’s a mobile app and it’s not as good as these other platforms, but at least it’s free commission. Okay, so today with all of these other platforms also offering free commission is Robinhood. Do they have a viable business model? Is there a good value proposition for you as an aspiring trader or an investor?

Now, it’s true that Robinhood does give you slightly better price improvement. But Robinhood doesn’t have hotkeys, they don’t have a desktop platform, it’s very simple. So I think that it’s suitable for people who want to trade crypto. You do get a little bit of price improvement, but ThinkorSwim is a much more robust platform, both on mobile and on desktop. Top. The charts are far superior. The hotkeys are terrific. You pay a little bit in the price improvement. As we compare the features we can see that Robinhood only excels in a small handful of categories. So for a small group of traders, they may be a better bet than ThinkorSwim, but for most traders, they’ll find everything they need and more with ThinkorSwim.

Who Loses in the Free Commission Payment for Order Flow Arrangement?

The fact is, commission free is not exactly free. As you know, these brokers are selling your order flow to institutional traders, the wholesalers, and they make a profit on every single trade that you execute. They make billions of dollars yearly on this payment for order flow relationships. So you do get price improvement, but obviously, the broker is also getting paid and the wholesalers making money. So it’s a funny thing. Well, you might say, who loses here in this relationship? Isn’t it just a win -win -win -win? The loser is the exchange as more and more orders are executed in off-market venues. The wholesales often match orders internally without sending them out to the market. That hurts liquidity on the leading exchanges, costing the main exchanges billions of dollars a year in fees.

Alternative Trading Systems can do something exchanges can’t do. They can split pennies. On exchanges, stocks above $1.00 are priced with a minimum spread of 1 cent. But on the ATS, the wholesaler can split the pennies. That means they can split the penny four ways, one to the buyer (price improvement on the buy order) one to the seller (price improvement for the sell order), one to the broker (ThinkorSwim/Robinhood), and they keep one for themselves. So we’re talking about a 1/4 of a penny per share. But, remember on 10,000 shares that’s $25. On a broker-dealer executing hundreds of millions of shares a day.

Let’s put this in perspective. The wholesalers engaging in payment for order flow are making billions of dollars a year.

The Verdict for Robinhood vs ThinkorSwim

Sadly for Robinhood, they simply can’t compete with the behemoth of ThinkorSwim. On the majority of categories reviewed, ThinkorSwim wins. Robinhood could be a win for you if you’re an options trader or a crypto trader, but my guess is that when ThinkorSwim is ready to crush Robinhood completely, they’ll expand into crypto and free options. Big brokers dominate the retail trading space and the little guys are getting pushed aside. The best bet for Robinhood shareholders is that one of the big companies buys them out entirely, albeit for a fraction of the price the stock once traded at.