Which market makers have the most impact on stock prices?
New research has revealed which brokers are making the most money from market makers, with one broker nearing the $1 billion mark. The study, from BrokerChooser, analyzed global brokers and market makers to reveal the effect of market makers on the investment world.
Market makers are intermediaries who buy and sell securities to provide liquidity to the market. In the United States, market makers are mandated to execute securities at the national best bid or ask price (NBBO). They earn income through the spread, which is the difference between the bid and ask prices of the shares.
Which brokers get the most revenue from market makers?
After reviewing SEC 606 reports between 2020 and 2021, BrokerChooser found that a total of $2.27 billion was paid to the 12 brokers covered in the analysis, to direct trades to market makers.
TD Ameritrade is the broker that generated the most revenue, with just under $1 billion in total, followed by Robin Hood, one of the market leaders, with PFOF (Payment for Order Flow) revenue of $532 million. The PFOF is the compensation an investment dealer receives from a market maker in return for the broker routing its clients’ trades to that market maker.
However, not all brokers benefit equally from the PFOF. loyalty and Avant-gardefor example, did not earn money from the PFOF, as shown in the table below.
Which brokers use market makers the most?
The study also looked at both brokers most likely to route investors’ trades to a market maker and those more likely to route investors to public exchanges, such as the S&P 500.
A number of brokers, including Robinhood, direct 100% of trades to market makers, alternative trading systems or other execution firms. Unsurprisingly, these companies are often also the ones with the highest PFOF revenues, with Robinhood having received half a million dollars in PFOF during the period analyzed.
On the other hand, for a broker like Interactive brokerswhich generated a total of $12 million, and Fidelity, which earns nothing at all via PFOF, only 19% and 60% of orders respectively go to market makers.
Which market makers are executing the most shares?
Looking again at SEC 606 reports, BrokerChooser revealed the market makers that executed the most stocks between 2020 and 2021. Comparing 10 large-cap stocks and even, Citadel and Virtuous emerged as the market makers that executed the most shares among the top four market makers analyzed. Citadel performed more than three times as many actions as G1X and more than six times more than Two Sigma.
Apple is the most beneficial action for market makers looking to execute stocks, with a total of 12.79 billion shares executed. Meme stocks CMA and GameStop were ranked 2nd and 8th respectively, and more established companies such as nokia, Microsoft and Amazon all ranked in the top 10, as shown in the table below.