Market Makers and Quant Trading 🌱
- Market Makers post orders at the buy and sell sides and leave them there
- Market makers compete with one another to post the best available list prices, but they also want to avoid getting run over
- Why are market orders free
- Robinhood allows free trades by trading your order directly with a market maker. Market makers compete for your and they actually give you a price slightly better than in the market.
- Market makers get money from these trades with robinhood because these trades cross the spread and they are essentially random so you can expect the spread to be crossed in both directions.
- Why are limit orders free
- Conventionally, exchanges offer rebates to those who supply liquidity and charge those who take away liquidity (exchange pays robinhood to post your limit order)
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