Download This PaperThe 'Actual Retail Price' of Equity Trades
79 Pages Posted: 17 Aug 2022 Last revised: 15 Sep 2022
Date Written: September 14, 2022
Abstract
We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account-level round-trip cost ranges from –0.07% to –0.45% excluding any commissions. The dispersion is due to off-exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF cannot explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.
Keywords: retail trading, execution quality, bid/ask spread, market microstructure, payment for order flow, commissions, broker-dealers
JEL Classification: G12, G14, G50
Suggested Citation: Suggested Citation
Brad M. Barber
University of California, Davis ( email )
Graduate School of Management
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Terrance Odean
University of California, Berkeley - Haas School of Business ( email )
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