Fast Trader Pulled a Fast One on Some Customers | Hacker News Reader

Fast Trader Pulled a Fast One on Some Customers

bloomberg.com

50 pointsptr13 comments

> So when the SIP says that the price of a stock is $40.02, Citadel knows that it's really $40.01, so it can buy the stock at $40.01 and sell it to you for $40.016 for a guaranteed risk-free profit.

This implies that Citadel is buying the stock before selling it to you. I doubt that's the case as waiting for the ack from the exchange before handing the latency would be too high, more likely that Citadel assumes it is likely that it can buy it for that price at the same time that it is selling it to you (and that's seems what's implied in the FastFill description). That's not guaranteed profit as Citadel is taking a risk (albeit small) as its buy at the better price might not be filled.

edit: and in fact the article later says that this risk-free arbitrage is not really risk free.

> This implies that Citadel is buying the stock before selling it to you.

Large firms do this business as usual. They maintain inventory and sell it to their customers directly, while still reporting the trade to the market audit trail. This is usually done by the private brokerage side of the firm executing all trades through the public investment side, and the investment side just executes the trade against the house inventory instead of a third party buyer/seller in the market.

Of course they do, but if they don't get a guaranteed buy on the exchange at the current best price, they can't guarantee profit.

That is how it works. When you buy stock, you buy it from market makers, such as Citadel, for the Ask price, and when you sell it, Citadel buys the stock for the bid price. At the moment Google's Ask is $803.39 and Bid is $803.15, so Citadel would make $0.24 off each transaction. Multiply that by avg daily volume, equates to $421,872 in daily profits for market making.

I wouldn't be suppressed if Citadel simply sells marginally cheaper just so they get more volume to extract information about price/volume trends before their competitors can

Just because the market is showing GOOG ask @803.39, doesn't mean that if you send an order at that price it will be filled. This means that Citadel is not guaranteed the 'risk-free' margin as initially claimed in the article.

Also, this is retail flow, likely there isn't much information to extract for Citadel.

Yea they are insinuating the process of being the third party and performing arbitrage. They are just taking your money at the price they offer you and fill the order at the cheaper price available to them. They are being the middle man and making money from the spread.

This article was about retail customers and exchanges. Sounds like they made not much money with that.

What the article left out is that everyone learned that this type of race arbitrage can be done. As a result a number of private microwave networks was build and this type of trade is done on a much larger scale between the exchanges now prompting institutional investors to question the fairness of the deal they are given.

Nifty. The microsecond gamers even salami slice run of the mill orders to skim profit from you.

I think you missed part of the article. Citadel's actions lead to lower prices for retail. Their actions are saving you money

"But the weirdest part is that Citadel is selling you the stock for a lower price than what's available on the public exchanges. For instance, if the public exchange shows the stock offered at $40.02, Citadel will sell you that same stock for $40.016, saving you like 40 cents on a 100-share order. (This is called "price improvement.") It's giving you a (slightly) better deal than you'd get elsewhere!"

allowing sub-penny executions by some effectively steals trades from risk takers on primary exchanges; it's horrible for market structure and depth. the sub-penny problem is a function of another insidious practice, payment for order flow. both should be banned.

A dead comment by "lintiness" also happened to use the phrase "of another insidious practice" - coincidence?

Nonetheless I find the comment in both its incarnations civil, insightful and substantive (though contrarian), and I don't think it ought to be dead.

I disagree that the post is 'substantive'. Opinions are shared, possibly reasonable one, but there is no further substance to them. I also consider words like 'steal' to be loaded in that context.

The problem is, this raises the question of sock-puppets being used; even if they don't appear to be employed as expected.

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