More on Marketing

Jenn Leach
3 years ago
This clever Instagram marketing technique increased my sales to $30,000 per month.
No Paid Ads Required
I had an online store. After a year of running the company alongside my 9-to-5, I made enough to resign.
That day was amazing.
This Instagram marketing plan helped the store succeed.
How did I increase my sales to five figures a month without using any paid advertising?
I used customer event marketing.
I'm not sure this term exists. I invented it to describe what I was doing.
Instagram word-of-mouth, fan engagement, and interaction drove sales.
If a customer liked or disliked a product, the buzz would drive attention to the store.
I used customer-based events to increase engagement and store sales.
Success!
Here are the weekly Instagram customer events I coordinated while running my business:
Be the Buyer Days
Flash sales
Mystery boxes
Be the Buyer Days: How do they work?
Be the Buyer Days are exactly that.
You choose a day to share stock selections with social media followers.
This is an easy approach to engaging customers and getting fans enthusiastic about new releases.
First, pick a handful of items you’re considering ordering. I’d usually pick around 3 for Be the Buyer Day.
Then I'd poll the crowd on Instagram to vote on their favorites.
This was before Instagram stories, polls, and all the other cool features Instagram offers today. I think using these tools now would make this event even better.
I'd ask customers their favorite back then.
The growing comments excited customers.
Then I'd declare the winner, acquire the products, and start selling it.
How do flash sales work?
I mostly ran flash sales.
You choose a limited number of itemsdd for a few-hour sale.
We wanted most sales to result in sold-out items.
When an item sells out, it contributes to the sensation of scarcity and can inspire customers to visit your store to buy a comparable product, join your email list, become a fan, etc.
We hoped they'd act quickly.
I'd hold flash deals twice a week, which generated scarcity and boosted sales.
The store had a few thousand Instagram followers when I started flash deals.
Each flash sale item would make $400 to $600.
$400 x 3= $1,200
That's $1,200 on social media!
Twice a week, you'll make roughly $10K a month from Instagram.
$1,200/day x 8 events/month=$9,600
Flash sales did great.
We held weekly flash deals and sent social media and email reminders. That’s about it!
How are mystery boxes put together?
All you do is package a box of store products and sell it as a mystery box on TikTok or retail websites.
A $100 mystery box would cost $30.
You're discounting high-value boxes.
This is a clever approach to get rid of excess inventory and makes customers happy.
It worked!
Be the Buyer Days, flash deals, and mystery boxes helped build my company without paid advertisements.
All companies can use customer event marketing. Involving customers and providing an engaging environment can boost sales.
Try it!

Joseph Mavericks
3 years ago
You Don't Have to Spend $250 on TikTok Ads Because I Did
900K impressions, 8K clicks, and $$$ orders…
I recently started dropshipping. Now that I own my business and can charge it as a business expense, it feels less like money wasted if it doesn't work. I also made t-shirts to sell. I intended to open a t-shirt store and had many designs on a hard drive. I read that Tiktok advertising had a high conversion rate and low cost because they were new. According to many, the advertising' cost/efficiency ratio would plummet and become as bad as Google or Facebook Ads. Now felt like the moment to try Tiktok marketing and dropshipping. I work in marketing for a SaaS firm and have seen how poorly ads perform. I wanted to try it alone.
I set up $250 and ran advertising for a week. Before that, I made my own products, store, and marketing. In this post, I'll show you my process and results.
Setting up the store
Dropshipping is a sort of retail business in which the manufacturer ships the product directly to the client through an online platform maintained by a seller. The seller takes orders but has no stock. The manufacturer handles all orders. This no-stock concept increases profitability and flexibility.
In my situation, I used previous t-shirt designs to make my own product. I didn't want to handle order fulfillment logistics, so I looked for a way to print my designs on demand, ship them, and handle order tracking/returns automatically. So I found Printful.
I needed to connect my backend and supplier to a storefront so visitors could buy. 99% of dropshippers use Shopify, but I didn't want to master the difficult application. I wanted a one-day project. I'd previously worked with Big Cartel, so I chose them.
Big Cartel doesn't collect commissions on sales, simply a monthly flat price ($9.99 to $19.99 depending on your plan).
After opening a Big Cartel account, I uploaded 21 designs and product shots, then synced each product with Printful.
Developing the ads
I mocked up my designs on cool people photographs from placeit.net, a great tool for creating product visuals when you don't have a studio, camera gear, or models to wear your t-shirts.
I opened an account on the website and had advertising visuals within 2 hours.
Because my designs are simple (black design on white t-shirt), I chose happy, stylish people on plain-colored backdrops. After that, I had to develop an animated slideshow.
Because I'm a graphic designer, I chose to use Adobe Premiere to create animated Tiktok advertising.
Premiere is a fancy video editing application used for more than advertisements. Premiere is used to edit movies, not social media marketing. I wanted this experiment to be quick, so I got 3 social media ad templates from motionarray.com and threw my visuals in. All the transitions and animations were pre-made in the files, so it only took a few hours to compile. The result:
I downloaded 3 different soundtracks for the videos to determine which would convert best.
After that, I opened a Tiktok business account, uploaded my films, and inserted ad info. They went live within one hour.
The (poor) outcomes
As a European company, I couldn't deliver ads in the US. All of my advertisements' material (title, description, and call to action) was in English, hence they continued getting rejected in Europe for countries that didn't speak English. There are a lot of them:
I lost a lot of quality traffic, but I felt that if the images were engaging, people would check out the store and buy my t-shirts. I was wrong.
51,071 impressions on Day 1. 0 orders after 411 clicks
114,053 impressions on Day 2. 1.004 clicks and no orders
Day 3: 987 clicks, 103,685 impressions, and 0 orders
101,437 impressions on Day 4. 0 orders after 963 clicks
115,053 impressions on Day 5. 1,050 clicks and no purchases
125,799 impressions on day 6. 1,184 clicks, no purchases
115,547 impressions on Day 7. 1,050 clicks and no purchases
121,456 impressions on day 8. 1,083 clicks, no purchases
47,586 impressions on Day 9. 419 Clicks. No orders
My overall conversion rate for video advertisements was 0.9%. TikTok's paid ad formats all result in strong engagement rates (ads average 3% to 12% CTR to site), therefore a 1 to 2% CTR should have been doable.
My one-week experiment yielded 8,151 ad clicks but no sales. Even if 0.1% of those clicks converted, I should have made 8 sales. Even companies with horrible web marketing would get one download or trial sign-up for every 8,151 clicks. I knew that because my advertising were in English, I had no impressions in the main EU markets (France, Spain, Italy, Germany), and that this impacted my conversion potential. I still couldn't believe my numbers.
I dug into the statistics and found that Tiktok's stats didn't match my store traffic data.
Looking more closely at the numbers
My ads were approved on April 26 but didn't appear until April 27. My store dashboard showed 440 visitors but 1,004 clicks on Tiktok. This happens often while tracking campaign results since different platforms handle comparable user activities (click, view) differently. In online marketing, residual data won't always match across tools.
My data gap was too large. Even if half of the 1,004 persons who clicked closed their browser or left before the store site loaded, I would have gained 502 visitors. The significant difference between Tiktok clicks and Big Cartel store visits made me suspicious. It happened all week:
Day 1: 440 store visits and 1004 ad clicks
Day 2: 482 store visits, 987 ad clicks
3rd day: 963 hits on ads, 452 store visits
443 store visits and 1,050 ad clicks on day 4.
Day 5: 459 store visits and 1,184 ad clicks
Day 6: 430 store visits and 1,050 ad clicks
Day 7: 409 store visits and 1,031 ad clicks
Day 8: 166 store visits and 418 ad clicks
The disparity wasn't related to residual data or data processing. The disparity between visits and clicks looked regular, but I couldn't explain it.
After the campaign concluded, I discovered all my creative assets (the videos) had a 0% CTR and a $0 expenditure in a separate dashboard. Whether it's a dashboard reporting issue or a budget allocation bug, online marketers shouldn't see this.
Tiktok can present any stats they want on their dashboard, just like any other platform that runs advertisements to promote content to its users. I can't verify that 895,687 individuals saw and clicked on my ad. I invested $200 for what appears to be around 900K impressions, which is an excellent ROI. No one bought a t-shirt, even an unattractive one, out of 900K people?
Would I do it again?
Nope. Whether I didn't make sales because Tiktok inflated the dashboard numbers or because I'm horrible at producing advertising and items that sell, I’ll stick to writing content and making videos. If setting up a business and ads in a few days was all it took to make money online, everyone would do it.
Video advertisements and dropshipping aren't dead. As long as the internet exists, people will click ads and buy stuff. Converting ads and selling stuff takes a lot of work, and I want to focus on other things.
I had always wanted to try dropshipping and I’m happy I did, I just won’t stick to it because that’s not something I’m interested in getting better at.
If I want to sell t-shirts again, I'll avoid Tiktok advertisements and find another route.

Camilla Dudley
3 years ago
How to gain Twitter followers: A 101 Guide
No wonder brands use Twitter to reach their audience. 53% of Twitter users buy new products first.
Twitter growth does more than make your brand look popular. It helps clients trust your business. It boosts your industry standing. It shows clients, prospects, and even competitors you mean business.
How can you naturally gain Twitter followers?
Share useful information
Post visual content
Tweet consistently
Socialize
Spread your @name everywhere.
Use existing customers
Promote followers
Share useful information
Twitter users join conversations and consume material. To build your followers, make sure your material appeals to them and gives value, whether it's sales, product lessons, or current events.
Use Twitter Analytics to learn what your audience likes.
Explore popular topics by utilizing relevant keywords and hashtags. Check out this post on how to use Twitter trends.
Post visual content
97% of Twitter users focus on images, so incorporating media can help your Tweets stand out. Visuals and videos make content more engaging and memorable.
Tweet often
Your audience should expect regular content updates. Plan your ideas and tweet during crucial seasons and events with a content calendar.
Socialize
Twitter connects people. Do more than tweet. Follow industry leaders. Retweet influencers, engage with thought leaders, and reply to mentions and customers to boost engagement.
Micro-influencers can promote your brand or items. They can help you gain new audiences' trust.
Spread your @name everywhere.
Maximize brand exposure. Add a follow button on your website, link to it in your email signature and newsletters, and promote it on business cards or menus.
Use existing customers
Emails can be used to find existing Twitter clients. Upload your email contacts and follow your customers on Twitter to start a dialogue.
Promote followers
Run a followers campaign to boost your organic growth. Followers campaigns promote your account to a particular demographic, and you only pay when someone follows you.
Consider short campaigns to enhance momentum or an always-on campaign to gain new followers.
Increasing your brand's Twitter followers takes effort and experimentation, but the payback is huge.
👋 Follow me on twitter
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Frank Andrade
3 years ago
I discovered a bug that allowed me to use ChatGPT to successfully web scrape. Here's how it operates.
This method scrapes websites with ChatGPT (demo with Amazon and Twitter)
In a recent article, I demonstrated how to scrape websites using ChatGPT prompts like scrape website X using Python.
But that doesn’t always work.
After scraping dozens of websites with ChatGPT, I realized that simple prompts rarely work for web scraping.
Using ChatGPT and basic HTML, we can scrape any website.
First things first, use ChatGPT's advanced version (Playground)
ChatGPT Playground's enhanced version is needed to scrape websites quickly. It generates code faster and has less constraints.
Here’s how it looks.
The classic ChatGPT display just allows you to type a prompt. Playground is more customizable and generates code faster than the basic version.
No more delays or restrictions.
In this tutorial, we'll write prompts underneath Playground.
How to Use ChatGPT to Scrape Any Website
To show you how to utilize ChatGPT to scrape any website, we'll use subslikescript, which lists movies.
Later in this post, I'll show you how to scrape Amazon and Twitter, but let's start easy.
If we try a basic prompt like “scrape the movie titles on this website: https://subslikescript.com/movies” it won’t scrape anything. Here’s when we need some HTML knowledge to build the right prompt for ChatGPT.Let's scrape the above movie titles. First, check the webpage. Right-click any element and choose Inspect.
Then see below.
We identify the element to scrape (those in the red box). The data elements are ul, a, and scripts-list.
Here's the prompt for movie titles.
Scrape this website: https://subslikescript.com/movies with Python and Beautiful Soup. Locate the element with tag “ul” and class “scripts-list”. Scrape all the “a” elements inside. Get the text attribute and print it.
Code generated:
import requests
from bs4 import BeautifulSoup
page = requests.get('https://subslikescript.com/movies/')
soup = BeautifulSoup(page.content, 'html.parser')
scripts_list = soup.find(class_="scripts-list")
all_a_elements = scripts_list.find_all('a')
for element in all_a_elements:
print(element.get_text())It extracts movie titles successfully.
Let's scrape Amazon and Twitter.
ChatGPT's Amazon scraping
Consider scraping Amazon for self-help books. First, copy the Amazon link for self-help books.
Here’s the link I got. Location-dependent connection. Use my link to replicate my results.
Now we'll check book titles. Here's our element.
If we want to extract the book titles, we need to use the tag name span, class attribute name and a-size-base-plus a-color-base a-text-normalattribute value.
This time I'll use Selenium. I'll add Selenium-specific commands like wait 5 seconds and generate an XPath.
Scrape this website https://www.amazon.com/s?k=self+help+books&sprefix=self+help+%2Caps%2C158&ref=nb_sb_ss_ts-doa-p_2_10 with Python and Selenium.
Wait 5 seconds and locate all the elements with the following xpath: “span” tag, “class” attribute name, and “a-size-base-plus a-color-base a-text-normal” attribute value. Get the text attribute and print them.
Code generated: (I only had to manually add the path where my chromedriver is located).
from selenium import webdriver
from selenium.webdriver.common.by import By
from time import sleep
#initialize webdriver
driver = webdriver.Chrome('<add path of your chromedriver>')
#navigate to the website
driver.get("https://www.amazon.com/s?k=self+help+books&sprefix=self+help+%2Caps%2C158&ref=nb_sb_ss_ts-doa-p_2_10")
#wait 5 seconds to let the page load
sleep(5)
#locate all the elements with the following xpath
elements = driver.find_elements(By.XPATH, '//span[@class="a-size-base-plus a-color-base a-text-normal"]')
#get the text attribute of each element and print it
for element in elements:
print(element.text)
#close the webdriver
driver.close()It pulls Amazon book titles.
Utilizing ChatGPT to scrape Twitter
Say you wish to scrape ChatGPT tweets. Search Twitter for ChatGPT and copy the URL.
Here’s the link I got. We must check every tweet. Here's our element.
To extract a tweet, use the div tag and lang attribute.
Again, Selenium.
Scrape this website: https://twitter.com/search?q=chatgpt&src=typed_query using Python, Selenium and chromedriver.
Maximize the window, wait 15 seconds and locate all the elements that have the following XPath: “div” tag, attribute name “lang”. Print the text inside these elements.
Code generated: (again, I had to add the path where my chromedriver is located)
from selenium import webdriver
import time
driver = webdriver.Chrome("/Users/frankandrade/Downloads/chromedriver")
driver.maximize_window()
driver.get("https://twitter.com/search?q=chatgpt&src=typed_query")
time.sleep(15)
elements = driver.find_elements_by_xpath("//div[@lang]")
for element in elements:
print(element.text)
driver.quit()You'll get the first 2 or 3 tweets from a search. To scrape additional tweets, click X times.
Congratulations! You scraped websites without coding by using ChatGPT.

Matt Ward
3 years ago
Is Web3 nonsense?
Crypto and blockchain have rebranded as web3. They probably thought it sounded better and didn't want the baggage of scam ICOs, STOs, and skirted securities laws.
It was like Facebook becoming Meta. Crypto's biggest players wanted to change public (and regulator) perception away from pump-and-dump schemes.
After the 2018 ICO gold rush, it's understandable. Every project that raised millions (or billions) never shipped a meaningful product.
Like many crazes, charlatans took the money and ran.
Despite its grifter past, web3 is THE hot topic today as more founders, venture firms, and larger institutions look to build the future decentralized internet.
Supposedly.
How often have you heard: This will change the world, fix the internet, and give people power?
Why are most of web3's biggest proponents (and beneficiaries) the same rich, powerful players who built and invested in the modern internet? It's like they want to remake and own the internet.
Something seems off about that.
Why are insiders getting preferential presale terms before the public, allowing early investors and proponents to flip dirt cheap tokens and advisors shares almost immediately after the public sale?
It's a good gig with guaranteed markups, no risk or progress.
If it sounds like insider trading, it is, at least practically. This is clear when people talk about blockchain/web3 launches and tokens.
Fast money, quick flips, and guaranteed markups/returns are common.
Incentives-wise, it's hard to blame them. Who can blame someone for following the rules to win? Is it their fault or regulators' for not leveling the playing field?
It's similar to oil companies polluting for profit, Instagram depressing you into buying a new dress, or pharma pushing an unnecessary pill.
All of that is fair game, at least until we change the playbook, because people (and corporations) change for pain or love. Who doesn't love money?
belief based on money gain
Sinclair:
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
Bitcoin, blockchain, and web3 analogies?
Most blockchain and web3 proponents are true believers, not cynical capitalists. They believe blockchain's inherent transparency and permissionless trust allow humanity to evolve beyond our reptilian ways and build a better decentralized and democratic world.
They highlight issues with the modern internet and monopoly players like Google, Facebook, and Apple. Decentralization fixes everything
If we could give power back to the people and get governments/corporations/individuals out of the way, we'd fix everything.
Blockchain solves supply chain and child labor issues in China.
To meet Paris climate goals, reduce emissions. Create a carbon token.
Fixing online hatred and polarization Web3 Twitter and Facebook replacement.
Web3 must just be the answer for everything… your “perfect” silver bullet.
Nothing fits everyone. Blockchain has pros and cons like everything else.
Blockchain's viral, ponzi-like nature has an MLM (mid level marketing) feel. If you bought Taylor Swift's NFT, your investment is tied to her popularity.
Probably makes you promote Swift more. Play music loudly.
Here's another example:
Imagine if Jehovah’s Witnesses (or evangelical preachers…) got paid for every single person they converted to their cause.
It becomes a self-fulfilling prophecy as their faith and wealth grow.
Which breeds extremism? Ultra-Orthodox Jews are an example. maximalists
Bitcoin and blockchain are causes, religions. It's a money-making movement and ideal.
We're good at convincing ourselves of things we want to believe, hence filter bubbles.
I ignore anything that doesn't fit my worldview and seek out like-minded people, which algorithms amplify.
Then what?
Is web3 merely a new scam?
No, never!
Blockchain has many crucial uses.
Sending money home/abroad without bank fees;
Like fleeing a war-torn country and converting savings to Bitcoin;
Like preventing Twitter from silencing dissidents.
Permissionless, trustless databases could benefit society and humanity. There are, however, many limitations.
Lost password?
What if you're cheated?
What if Trump/Putin/your favorite dictator incites a coup d'état?
What-ifs abound. Decentralization's openness brings good and bad.
No gatekeepers or firefighters to rescue you.
ISIS's fundraising is also frictionless.
Community-owned apps with bad interfaces and service.
Trade-offs rule.
So what compromises does web3 make?
What are your trade-offs? Decentralization has many strengths and flaws. Like Bitcoin's wasteful proof-of-work or Ethereum's political/wealth-based proof-of-stake.
To ensure the survival and veracity of the network/blockchain and to safeguard its nodes, extreme measures have been designed/put in place to prevent hostile takeovers aimed at altering the blockchain, i.e., adding money to your own wallet (account), etc.
These protective measures require significant resources and pose challenges. Reduced speed and throughput, high gas fees (cost to submit/write a transaction to the blockchain), and delayed development times, not to mention forked blockchain chains oops, web3 projects.
Protecting dissidents or rogue regimes makes sense. You need safety, privacy, and calm.
First-world life?
What if you assumed EVERYONE you saw was out to rob/attack you? You'd never travel, trust anyone, accomplish much, or live fully. The economy would collapse.
It's like an ant colony where half the ants do nothing but wait to be attacked.
Waste of time and money.
11% of the US budget goes to the military. Imagine what we could do with the $766B+ we spend on what-ifs annually.
Is so much hypothetical security needed?
Blockchain and web3 are similar.
Does your app need permissionless decentralization? Does your scooter-sharing company really need a proof-of-stake system and 1000s of nodes to avoid Russian hackers? Why?
Worst-case scenario? It's not life or death, unless you overstate the what-ifs. Web3 proponents find improbable scenarios to justify decentralization and tokenization.
Do I need a token to prove ownership of my painting? Unless I'm a master thief, I probably bought it.
despite losing the receipt.
I do, however, love Web 3.
Enough Web3 bashing for now. Understand? Decentralization isn't perfect, but it has huge potential when applied to the right problems.
I see many of the right problems as disrupting big tech's ruthless monopolies. I wrote several years ago about how tokenized blockchains could be used to break big tech's stranglehold on platforms, marketplaces, and social media.
Tokenomics schemes can be used for good and are powerful. Here’s how.
Before the ICO boom, I made a series of predictions about blockchain/crypto's future. It's still true.
Here's where I was then and where I see web3 going:
My 11 Big & Bold Predictions for Blockchain
In the near future, people may wear crypto cash rings or bracelets.
While some governments repress cryptocurrency, others will start to embrace it.
Blockchain will fundamentally alter voting and governance, resulting in a more open election process.
Money freedom will lead to a more geographically open world where people will be more able to leave when there is unrest.
Blockchain will make record keeping significantly easier, eliminating the need for a significant portion of government workers whose sole responsibility is paperwork.
Overrated are smart contracts.
6. Tokens will replace company stocks.
7. Blockchain increases real estate's liquidity, value, and volatility.
8. Healthcare may be most affected.
9. Crypto could end privacy and lead to Minority Report.
10. New companies with network effects will displace incumbents.
11. Soon, people will wear rings or bracelets with crypto cash.
Some have already happened, while others are still possible.
Time will tell if they happen.
And finally:
What will web3 be?
Who will be in charge?
Closing remarks
Hope you enjoyed this web3 dive. There's much more to say, but that's for another day.
We're writing history as we go.
Tech regulation, mergers, Bitcoin surge How will history remember us?
What about web3 and blockchain?
Is this a revolution or a tulip craze?
Remember, actions speak louder than words (share them in the comments).
Your turn.

Theresa W. Carey
3 years ago
How Payment for Order Flow (PFOF) Works
What is PFOF?
PFOF is a brokerage firm's compensation for directing orders to different parties for trade execution. The brokerage firm receives fractions of a penny per share for directing the order to a market maker.
Each optionable stock could have thousands of contracts, so market makers dominate options trades. Order flow payments average less than $0.50 per option contract.
Order Flow Payments (PFOF) Explained
The proliferation of exchanges and electronic communication networks has complicated equity and options trading (ECNs) Ironically, Bernard Madoff, the Ponzi schemer, pioneered pay-for-order-flow.
In a December 2000 study on PFOF, the SEC said, "Payment for order flow is a method of transferring trading profits from market making to brokers who route customer orders to specialists for execution."
Given the complexity of trading thousands of stocks on multiple exchanges, market making has grown. Market makers are large firms that specialize in a set of stocks and options, maintaining an inventory of shares and contracts for buyers and sellers. Market makers are paid the bid-ask spread. Spreads have narrowed since 2001, when exchanges switched to decimals. A market maker's ability to play both sides of trades is key to profitability.
Benefits, requirements
A broker receives fees from a third party for order flow, sometimes without a client's knowledge. This invites conflicts of interest and criticism. Regulation NMS from 2005 requires brokers to disclose their policies and financial relationships with market makers.
Your broker must tell you if it's paid to send your orders to specific parties. This must be done at account opening and annually. The firm must disclose whether it participates in payment-for-order-flow and, upon request, every paid order. Brokerage clients can request payment data on specific transactions, but the response takes weeks.
Order flow payments save money. Smaller brokerage firms can benefit from routing orders through market makers and getting paid. This allows brokerage firms to send their orders to another firm to be executed with other orders, reducing costs. The market maker or exchange benefits from additional share volume, so it pays brokerage firms to direct traffic.
Retail investors, who lack bargaining power, may benefit from order-filling competition. Arrangements to steer the business in one direction invite wrongdoing, which can erode investor confidence in financial markets and their players.
Pay-for-order-flow criticism
It has always been controversial. Several firms offering zero-commission trades in the late 1990s routed orders to untrustworthy market makers. During the end of fractional pricing, the smallest stock spread was $0.125. Options spreads widened. Traders found that some of their "free" trades cost them a lot because they weren't getting the best price.
The SEC then studied the issue, focusing on options trades, and nearly decided to ban PFOF. The proliferation of options exchanges narrowed spreads because there was more competition for executing orders. Options market makers said their services provided liquidity. In its conclusion, the report said, "While increased multiple-listing produced immediate economic benefits to investors in the form of narrower quotes and effective spreads, these improvements have been muted with the spread of payment for order flow and internalization."
The SEC allowed payment for order flow to continue to prevent exchanges from gaining monopoly power. What would happen to trades if the practice was outlawed was also unclear. SEC requires brokers to disclose financial arrangements with market makers. Since then, the SEC has watched closely.
2020 Order Flow Payment
Rule 605 and Rule 606 show execution quality and order flow payment statistics on a broker's website. Despite being required by the SEC, these reports can be hard to find. The SEC mandated these reports in 2005, but the format and reporting requirements have changed over the years, most recently in 2018.
Brokers and market makers formed a working group with the Financial Information Forum (FIF) to standardize order execution quality reporting. Only one retail brokerage (Fidelity) and one market maker remain (Two Sigma Securities). FIF notes that the 605/606 reports "do not provide the level of information that allows a retail investor to gauge how well a broker-dealer fills a retail order compared to the NBBO (national best bid or offer’) at the time the order was received by the executing broker-dealer."
In the first quarter of 2020, Rule 606 reporting changed to require brokers to report net payments from market makers for S&P 500 and non-S&P 500 equity trades and options trades. Brokers must disclose payment rates per 100 shares by order type (market orders, marketable limit orders, non-marketable limit orders, and other orders).
Richard Repetto, Managing Director of New York-based Piper Sandler & Co., publishes a report on Rule 606 broker reports. Repetto focused on Charles Schwab, TD Ameritrade, E-TRADE, and Robinhood in Q2 2020. Repetto reported that payment for order flow was higher in the second quarter than the first due to increased trading activity, and that options paid more than equities.
Repetto says PFOF contributions rose overall. Schwab has the lowest options rates, while TD Ameritrade and Robinhood have the highest. Robinhood had the highest equity rating. Repetto assumes Robinhood's ability to charge higher PFOF reflects their order flow profitability and that they receive a fixed rate per spread (vs. a fixed rate per share by the other brokers).
Robinhood's PFOF in equities and options grew the most quarter-over-quarter of the four brokers Piper Sandler analyzed, as did their implied volumes. All four brokers saw higher PFOF rates.
TD Ameritrade took the biggest income hit when cutting trading commissions in fall 2019, and this report shows they're trying to make up the shortfall by routing orders for additional PFOF. Robinhood refuses to disclose trading statistics using the same metrics as the rest of the industry, offering only a vague explanation on their website.
Summary
Payment for order flow has become a major source of revenue as brokers offer no-commission equity (stock and ETF) orders. For retail investors, payment for order flow poses a problem because the brokerage may route orders to a market maker for its own benefit, not the investor's.
Infrequent or small-volume traders may not notice their broker's PFOF practices. Frequent traders and those who trade larger quantities should learn about their broker's order routing system to ensure they're not losing out on price improvement due to a broker prioritizing payment for order flow.
This post is a summary. Read full article here