didn't the customers notice that they were given bad execution prices ? or would that be very hard to notice in practice ? (I'm not a trading expert obviously)
You'd only typically lose cents (if that; often enough you don't lose anything) per share. And there's no easy way to validate the price is "fair," since share prices are so fluid.
It's also a fairly victimless crime, as the article notes (although it downplays this); in practice, it seems users typically saved more money thanks to Robinhood's zero-fee trading than they lost in less optimal pricing for their trades. The problem here wasn't that payment-for-order-flow is bad — even Schwab does it for their zero-fee trading platform, and in practice it's often a good tradeoff — the problem is Robinhood lied about it.
And the fact that RH kept a far larger portion of the price improvement as their kickback. As the article mentions, the standard brokerage cut is 20% from the price improvement.
RH demanded 80% of it for themselves. Sure, their customers still got a better price than available in the lit exchange(s) but they were bilked by the 4x hidden commission.
To add to this, the swing is really wild. I’ve been tinkering with crypto trades manually through the app to get a hang for it, and limit orders still only tend to go through after you’re a few cents away from the market price, but if you naively do a market buy it will be 50-60 cents off in the wrong direction.
I immediately noticed when I switched brokers how much better the prices were, even on limit orders. When I used Robinhood I was 19 years old with no way to know better, aka their dream client
For a buy scenario. If a stock is trading at $20, other brokerages would execute a market order at $19.9997/share where Robinhood would execute a market order at $20.09/share. I noticed this also would occur but less noticeable on limit orders
