January 29, 2021

We Lose Money on Each Trade, But Make It Up In Volume

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I’m not super interested in the whole GameStop fiasco, but a paragraph in a New York Times piece caught my attention last night. A lot of the trades that have sent GameStop into the stratosphere were made via Robinhood, a trading app that charges no fees. So how do they make money?

Without fees, Robinhood makes money by passing its customer trades along to bigger brokerage firms, like Citadel, who pay Robinhood for the chance to fulfill its customer stock orders.

Wait. Robinhood can’t make money with $0 fees, but Citadel can apparently make money with essentially negative fees. I’m no high finance guy, but what am I missing here?

UPDATE: A reader answers my question:

There is value in the “flow” itself. Market makers (like Citadel or others) earn return by buying and selling particular stocks. If they have a ton of orders, buys and sells, at different prices, they can fill those orders in such a way as to earn a spread on each transaction (or really the totality of transactions as they are essentially wholesalers). This is how trading works. Commissions are just like a processing fee. That’s not how trading desks make money.

Huh. Somehow this still seems like a good way to lose a ton of money if things go pear shaped. But my money is all in low-load mutual funds, so what do I know?

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WE CAME UP SHORT.

We just wrapped up a shorter-than-normal, urgent-as-ever fundraising drive and we came up about $45,000 short of our $300,000 goal.

That means we're going to have upwards of $350,000, maybe more, to raise in online donations between now and June 30, when our fiscal year ends and we have to get to break-even. And even though there's zero cushion to miss the mark, we won't be all that in your face about our fundraising again until June.

So we urgently need this specific ask, what you're reading right now, to start bringing in more donations than it ever has. The reality, for these next few months and next few years, is that we have to start finding ways to grow our online supporter base in a big way—and we're optimistic we can keep making real headway by being real with you about this.

Because the bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we hope you might consider pitching in before moving on to whatever it is you're about to do next. We really need to see if we'll be able to raise more with this real estate on a daily basis than we have been, so we're hoping to see a promising start.

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