Hi,
if its free (all with commission-free stock trading API), how Alpaca is making money ? What there business model ?
I could be wrong but I think that these brokers profit thru the routing data being sold to high frequency traders. Retail traders get slightly slower execution so that HFT’s can swoop in before every trade.
Somebody please correct me if I’m wrong. I’m still trying to understand the details of this myself.
To avoid having your execution speed slowed down, you would instead go with a direct access broker, but then you have to pay the fees. If you’re serious about making a profit, to me this seems like a no-brainer.
“Since the orders are routed directly to liquidity providers, there are no middlemen that can delay the fills or limit liquidity . Centralized trading desks can often trade against your order to provide liquidity. For example, you Buy 5,000 Shares of XYZ, the broker will lend you the 5,000 shares short and then attempt to cover it back in the market at a lower price. This is legal but doesn’t sit well with many traders.”
Securities brokers traditionally generate revenue in multiple ways including charging trading commissions, marking up margin lending rates and stock loan, keeping interest on cash deposits, receiving payment for order flow by routing orders to market makers, and marking up the data feed subscription.
Although we do not charge commissions, Alpaca may generate revenue in some of the same ways as traditional online brokerages. These include:
- Interest on cash deposits
- Payment for order flow (“PFOF”) - Alpaca receives remuneration for routing your orders to market makers and exchanges. PFOF helps us offset the expense that occurs when clearing and executing our customers’ trades. You can read more about PFOF in our Medium post here. For Alpaca Securities SEC Rule 606 disclosures, please click here. It is important to note that our customers are not charged.
- Margin financing - Alpaca may charge interest for margin loans.
- Stock loan - Alpaca may charge stock loan fees for users who want to borrow stock to short sell.
this is so important! I used a semi-automated trading algorithm withy ally (when they allowed OCO trades) and they provided liquidity so I never had a trade pass through my stops without executing. Alpaca really sucks with execution speed. Every time a stock price drops fairly quickly it passes right through my stops and my limits and never executes, leaving me holding the (much cheaper now) bag. I’m moving my stuff out of alpaca, its execution time is so slow and untrustworthy, that its not worth it.