Robinhood, Trading 212 and others go down amid AMC and GameStop stock frenzy

That is exactly right. Profit (or loss) is what's left after a transaction is complete.

I don't know the specific answer to your question but I do have a data point to add. When I was just starting out in my career in the early 2000s, I worked for a hedge fund. One curious thing I noticed is that all the traders had time stamping machines on their desks that are inspected and sealed regularly. I was told that during an outage, these timestamp machines allow trades to continue to happen because the trader can write down the order and stamp it and their counter party would presumably do the same. Later the orders can then be reconciled when things are back up and running. This leads me to think that it is at the very least possible for transactions to be recorded in a distributed manner.

Example of machine: http://www.carpenterstimesystems.com/Amano-TS3000i-OATS-Time...

This might all be historical now.

The matching of orders for a single asset happens on one machine, call it matching engine. Matching is done based on price-time priority. Price is set by the trader, the time is set to the time the order was received by one of the order gateways sitting in front of the matching engine.

The order gateways' clocks are in sync, up to precision epsilon. So if you send two orders serially from same data center (to ignore effects of public Internet latencies and routing), and if they happen to be processed by different gateways, you still will see same ordering of your orders in matching engine, bar some cosmic ray events.

It is all commodity hardware running some flavor of Linux.

However this was couple years ago, they may be using ASICs and FPGAs now. The matching of orders for a single asset must still be done in single process otherwise you cannot guarantee price-time priority.

Following up, there was a random theory on WSB that since hedge funds were short over %130 of Gamestop's stock, there is a real risk that this will cause a liquidity crunch where there is literally no available stock to cover their positions.

As in there does not exist the stock to cover those positions, which means institutions are going to be in a race to avoid bankruptcy and have to outbid each other to acquire the remaining stock held by all these retail investors who know what they have. This is why WSB posters are saying $5000 is a conceivable price.

This is what would cause regulatory intervention, and certainly sets up the means/motive/opportunity for interrupting trading. Like the Fed steps in and buys it out or something. This looks like an LTCM level event.

Fidelity Active Trader Pro has been flaky all day, intermittently freezing when streaming data is temporarily lost.

Understood and agreed, at least in part. In the best case, short-sellers are the jackals/vultures that cull the weak and free up capital for new ventures. To the extent that shorts engage in reverse pump-and-dump, that is likely, too, to be inefficient.

It is my expectation that in the long term, both nefarious shorts and WSBers will lose to those working to create real value. It is simply unfortunate and perhaps unnecessary that the war between the chaos monkeys involves collateral damage. Such an environment adds reasons for successful companies to stay privately-traded, which is probably a net-negative for humanity.

Chatter in the last 12 hours on discord and on the threads has been a lot about having holders call brokers to ask that their stocks not be lent out

Matt Levine said this a couple of days ago:

"Bloomberg tells me that short interest is 71.2 million shares, while GameStop has only 69.7 million shares outstanding." (As he explained in a footnote, this does not necessarily imply massive naked shorting.)

I don't know how things have changed since then. Maybe this morning would have been a good time for GameStop to issue more shares?

Maybe I'm just a bad person but I don't feel much for people who get scammed due to their own greed.

> There was a story yesterday (I'm not sure of its validity) that Citadel has paid for advance knowledge for Robin Hood stock transactions

That's a complete distortion of what's actually happening. If this were actually happening and people knew about it there would be absolute outrage.

The truth is that Citadel is one of a few firms that pay Robinhood for the option to take the other side of trades. It's pretty innocuous but people get upset about it and turn it into "Citadel get advance knowledge of Robinhood trades".

Citadel is in the business of making markets. Instead of taking a position on a stock, they just happily take the other side of most trades. They make their money by offering slightly below the "true" market price and in exchange they provide liquidity to the market so that you can sell your stock pretty much whenever you want. The idea is that most trades are pretty random and for each trade on one side you have a trade on the other side that balances it out and Citadel keeps the difference between the "true" price and what they pay/sell at.

The problem is that sometimes lots of stock will be sold for a good reason (imagine someone finds out that there's an accounting fraud at some company). In this case, Citadel loses money because the trades don't balance out and the stock just goes down.

From Citadel's perspective, traders on Robinhood are much more likely to be random people with no extra info (retail investors) and so they're willing to pay Robinhood to route the orders to them because it reduces the risk of adverse selection. In exchange, Citadel has to give a price that's at least equal to the best price in the market or else they're not allowed to fulfill the order.

(Some?) Of the people carrying gme are saying that because >100% of the float on gme is shorted with ~6 days to cover; gme only needs to stay high until the shorters are forced to cover their short by buying at whatever prices they can.

Robin hood is free because their flow goes to third parties like citadel instead of smart order routers at sell side firms. But that is an edge of a less than a second. It is generally good to be able to ascribe an identity to order flow, but retail tends to behave in a predictable way at medium time scales

> Why wouldn't they double down?

Because short sellers accept potentially unlimited liability in the event of a price increase. Remember the old maxim: the markets can remain irrational longer than you can remain solvent.

The operating theory of the WallStreetBet hivemind is that the short sellers (collectively) are in so deep that further price increases will force them to close out their positions by buying back stock at a loss. Short sales are ultimately made on margin (because they're a debt of a share), and margin accounts will be called in at some ratio.

That "short squeeze" would cause the price to spiral ever further, and that price increase would then force any remaining short sellers out of the market.

See https://moxreports.com/vw-infinity-squeeze/ for a well-known, circa 2008 short squeeze that happened to Volkswagen.

The issue with the operating theory is that it's fuzzy; there's no way to know what price point will trigger such a short squeeze.

> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.

Only if you are highly leveraged yourself, exposing you to those dramatic losses if you mis-time the market even slightly. If you do want to take the down-side of Gamestop, it'd be safer to buy a put option to limit your potential loss. However, the high implied volatility also makes the trade a bit expensive right now.

(Edit to add: I have no financial interest in Gamestop, up or down.)

The stock is going up because of shorts. If the cycle of old shorts covering and new shorts taking positions continues, combined with the positive feedback loop of retail FOMO, the stock will continue to go up.

> I don't buy individual stocks and even I'm tempted to get in on the short side right now. Seems like an easy way to turn $1k into $10k.

Sure, if you call the top, otherwise you'll turn $1k into -$20k pretty quickly

The max gains on shorting stock is 100% and that’s ignoring fees you have to pay which are extremely high for GME right now.

Unless you plan to use 10x leverage or trade options, which I doubt if you don’t trade individual stocks, you can’t 10x by shorting. On the flip side, if you shorted at $20, you would have lost your entire portfolio if you shorted with 5% of your capital.

Shorting here is trying to catch a falling knife, don’t do it.

This doesn't have to do with GameStop as a company -- they are merely the rope in a tug of war between retail investors and wall st. Buying shares seems like the easy way to turn 1k into 10k given how many success stories have happened over the last few days.

If you short gme you're about to be in very heavy debt to your broker. At least buy a put or something instead.

I don't think anyone is actually long on gamestop at $350 per share, but trying to short is not about company expectations at this point, it's about timing this hysteria wave, and if you mistime it you get destroyed by infinite risk and your broker liquidate your position and you leave with not 10k, but -100k.

Fundamentals don't matter right now. If you don't time it just right, and it keeps going up, you'll get margin called and be forced to cover for a huge loss.

>Why wouldn't they double down?

Because everyone with an internet connection and half a brain knows that the shorts are totally screwed if the WSB turds keep buying.

> Seems like an easy way to turn $1k into $10k.

Who wants to tell him?

>There is zero percent chance that this is actually playing out the way WSB is claiming it's playing out.

What makes you say that? Any idea of what is happening?

You don't know if they shorted shares. Shorts are not disclosed on 13f's. Often times funds buy puts and short at the same time.

It sounds like they did short shares of gamestop. When the first article came out it said their puts had already expired. Gabe Plotkin called into CNBC this morning and said their "short had been covered" meaning that they did short shares.

ftfy!

https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

"Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."

Daddy Cohen just loaned them 3 Billion so they could stay solvent. Might want to check your math.

https://www.ft.com/content/8be64f49-7c90-4fae-8370-c5c5c96d8...

TLDR Melvin Capital is already down 3.75 Billion 3 weeks into 2021...