No Brokerage Company Publishes a strong attempt at a viral ad campaign on Tuesday with none other than the powerful ballad maestro Michael Bolton. In the video, Bolton and Public aimed at rival Robinhood.
Bolton, who climbed to the top of the Billboard charts in the late 1980s and has since leaned into the comedy of his image and regularly pops up in commercials, sings about “breaking up” with your brokerage platform, a clear hint of Robinhood, was recently subjected to strict control – by users, regulators and Congress – against the background of the instability of GameStop.
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In the song, Bolton sings about seeing things on Reddit and the “flow of orders,” and therefore has to find someone new.
“Tell me who you’re selling my deals to, ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo”
This is the main reason for the anti-Robinhood campaign: market makers like Citadel Securities pay Robinhood for the right (opportunity) to trade on the platform, often at a better price than they can get on the stock exchanges. This practice is called ‘order flow payment’.
The reason they pay is that when these market makers execute orders, they get a lot of information about the retail investor’s trade, which can give high-frequency traders an advantage. According to some studies, the market is negatively affected by this.
Public is different from your old broker, says Bolton in the ad: “They don’t sell your trades to third parties.” Public’s big hook is that it would like to be a combination of a brokerage platform and a social network in which portfolios are shared and viewed by other users.
In a recent announcement on February 1, the company said it would stop participating in the payment for the flow of orders.
The public’s investment in this viral marketing campaign suggests that it smells like blood in the water and seems to catch as many Robinhood customers with ruffled feathers as possible, spreading the word that Robinhood is a bad broker.
Robinhood currently has 13 million accounts, CEO Vlad Tenev told Congress in a February 18 testimony. Public, which launched a year and a half ago, has 1 million. A spokesman told Yahoo Finance that on January 28, the day Robinhood banned customers from buying shares in GameStop and some other stocks, the company saw a 20-fold increase in registrations compared to their average growth rate of about 30%. per month.
(Although Public declined to share their exact growth, the language of the February post said the “community” had doubled in size over the past few weeks.)
Paying for the flow of orders is something that many brokerage firms do and generates significant revenue and is one of the reasons why zero commission trading has become possible.
Public, unlike Robinhood, does not offer a margin (recommended by WeBull if you need it), which means that two of the main tools that zero-commission brokerage services use – market maker fees and margin loans – are off the table. (A margin loan allows the investor to borrow against the value of securities he or she already owns.)
Instead, Public makes money from interest on cash accounts, as well as by lending held by consumers to short sellers.
Lending securities to short sellers is a common practice such as paying for the flow of orders and the practice allows one of these entities to borrow a stock to short. The practice is built into some trading platforms, so many consumers may not realize that their shares have been granted. (Some brokers do this, others do not, and others offer clients a reduction in revenue.)
Surprisingly, this did not explode into a “scandal” in the way payment for the flow of orders (this was much of the hearing in Congress last week), given the public attitude towards short sellers after the GameStop affair. (During GameStop’s brief contraction, some investors asked their brokers not to lend to short sellers.)
However, the public will respect their demands that their shares not be granted, a spokesman said. This whole debate about how to make money, although still able to secure no-commission trade, has changed significantly with the influx of new investors questioning the status quo. If none of this works, Public says there may eventually be a subscription fee for a premium product.
Ethan Wolf-Mann is a writer at Yahoo Finance, focused on consumer issues, personal finance, retail, airlines and more. Follow him on Twitter @ewolffmann.