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Which market makers have the most impact on stock prices?

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New research has revealed the brokers that make the most money from market makers, with one broker almost reaching the $1 billion mark. The study, from BrokerChooser, analysed global brokers and market makers to reveal the effect market makers have on the investing world.

Market makers are intermediaries that buy and sell securities to provide liquidity in the market. In the US, market makers are mandated to execute securities at, or better than, the national best bid offer price (NBBO). They earn revenue through the spread, which is the difference between the bid and ask prices of stocks.

Which brokers make the most revenue from market makers?

After examining 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, for directing trades to market makers.

TD Ameritrade is the broker that generated the largest revenue, with just under a billion dollars in total, followed by Robinhood, one of the market leaders, with Payment for Order Flow (PFOF) revenue of $532 million. PFOF is the compensation that a stockbroker receives from a market maker in exchange for the broker routing its clients’ trades to that market maker.

Not all brokers profit from PFOF so much, however. Fidelity and Vanguard, for example, have not made any money through PFOF, as per the table below.

Which brokers use market makers the most?

The study also looked at both the brokers most likely to route investors’ trades to a market maker and those which instead tend to direct 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 firms are often also the ones that have the highest PFOF revenues, with Robinhood receiving half a million dollars in PFOF in the period analysed.

On the other hand, for a broker such as Interactive Brokers, which generated a total of $12 million, and Fidelity, which earns nothing at all through PFOF, only 19% and 60% of orders are directed to market makers, respectively.

Which market makers execute the most shares?

Again looking at SEC 606 reports, BrokerChooser revealed the market makers which executed the most shares between 2020 and 2021. Comparing 10 high-capitalisation and meme stocks, Citadel and Virtu emerged as the market makers that executed the most shares among the four major market makers analysed. Citadel executed more than three times more shares than G1X and more than six times more than Two Sigma.

Apple is the most advantageous stock for market makers looking to execute shares, with a total of 12.79 billion shares executed. Meme stocks AMC and GameStop were placed 2nd and 8th respectively, and more established companies such as Nokia, Microsoft and Amazon all ranked within the top 10, as shown in the table below.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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