Commission Savings and Execution Quality for Retail Trades

16 Pages Posted: 6 Dec 2021

See all articles by S.P. Kothari

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Travis L. Johnson

The University of Texas at Austin

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: December 2, 2021

Abstract

This study examines commission savings and execution quality for off-exchange retail trades and comparable on-exchange trades. Using both public and private order and execution data, we debunk some commonly held misconceptions about payment for order flow (PFOF). We find that PFOF has saved retail investors billions in unnecessary fees by allowing broker-dealers like Robinhood to eliminate trading commissions. We also find that retail investors, and especially Robinhood customers, have enjoyed substantial price improvements on trades executed off-exchange and that off-exchange retail trades generally experience better execution quality than trades of similar sizes on public exchanges.

Suggested Citation

Kothari, S.P. and Johnson, Travis L. and So, Eric C., Commission Savings and Execution Quality for Retail Trades (December 2, 2021). Available at SSRN: https://ssrn.com/abstract=3976300 or http://dx.doi.org/10.2139/ssrn.3976300

S.P. Kothari (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Travis L. Johnson

The University of Texas at Austin ( email )

2110 Speedway Stop B6600
Austin, TX Texas 78712
United States
6178995325 (Phone)

HOME PAGE: http://travislakejohnson.com

Eric C. So

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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