And the hedge funds making billions off that sentiment do as well of course, Citadel must be blushing at the runaway success of RH right now
They don't own it.
You think they can't profit off their access to RH's order flow during a high volatility event like this? This is exactly what they pay for, to make maddening amounts of money off dumb money pouring in.
The funny thing is that the money Citadel makes off of Robinhood is basically front running RH trades. If those trades are for GME, Citadel has to choose between:
- getting their front running revenue while increasing the price and making things worse for shorts (which I'm sure Melvin still has, despite their PR)
- foregoing their RH revenue to not exacerbate the situation for shorts
Pick your poison.
Which is fine, everyone is uninformed about some things. Except if you know nothing about something, you shouldn't post naive statements that you claim as factual, when they are in fact not.
What is Robinhood’s relationship with Citadel then?
Did the experts say front running? Or did they say paid for orders and somebody else said front running?
https://www.msn.com/en-us/money/other/aoc-returns-to-twitch-...
And here's a Vice article about it. They don't mention front running, but the outcome sounds the same, in that the customers are not paying the best price for the stock, since the middle man pockets some.
https://www.vice.com/en/article/qjpnz5/robinhoods-customers-...
Also, thread. Can't speak for the expertise of the author, but at least he links to several articles in the comments. https://twitter.com/toxic/status/1353890772135813121
This guy describes it as front running. https://mobile.twitter.com/anyaparampil/status/1355984104525...
https://www.bloomberg.com/opinion/articles/2021-01-29/reddit...
>Market makers stand ready to buy or sell stock from or to customers; they try to buy for a bit less than they sell at, and pocket the spread. If you go out into the market and say “hey I’ll buy anyone’s stock for $10,” and a really smart hedge fund comes to you and sells you stock for $10, that’s probably bad. You’ve probably made a mistake. The hedge fund is selling you the stock for $10 because it knows it’s worth $8. This is called “adverse selection.”
>More subtly, if a really big mutual fund comes to you and sells you stock for $10, that also may be bad. The mutual fund is probably selling lots of stock, because it’s so big; it sells you a little, then sells a little more, then a little more, until it pushes the price down to $8. The mutual fund isn’t necessarily smart, but by virtue of being big and doing big trades, it moves the price; if you are on the other side of its trades, you get run over. This is also a kind of adverse selection: You buy at $10 and are stuck selling at $8. Part of the spread that market makers earn in public markets—the difference between their buying and selling prices—compensates them for adverse selection, the risk of being run over by a counterparty who knows something they don’t.
>Market makers, the textbook theory goes, would much rather trade with retail orders. Retail investors generally don’t know much, so if you buy stock from them you’re probably not making a mistake. And retail orders are generally small and uncorrelated: One investor buys a little, another comes along a moment later and sells a little, it’s all pretty random, and you’re not facing an avalanche of steady sell orders that push the price down. Trading with retail is so nice that market makers—wholesalers—will both give retail orders a tighter spread (pay more to buy their stock, charge less to sell stock to them) and pay their broker for the privilege of doing it.
What do you make of some of what Citadel has done before?
https://www.bloomberg.com/news/articles/2020-07-21/citadel-s...
Every desk is trying to maximize pnl, end of story.
“But the SEC’s order finds that two algorithms used by Citadel Securities did not internalize retail orders at the best price observed nor sought to obtain the best price in the marketplace”
> [...] the best price observed [...]
> [...] the best price in the marketplace [...]
refers to the prices that they can get through all sources (ie. including PFOF firms aka market makers), not just NBBO.
The interesting thing about retail order flow is that market makers can offer it tighter spreads (I.e. better prices) because they know on average there is no edge in there (i.e. some huge fund with non-public knowledge).
That’s why they will literally pay to get order flow they know to be vetted as a bunch of retail investors.
It’s like a casino paying for a stream of blackjack customers that excludes card counters. It’s worth money to them and it’s even worth it for the customers because the casino can offer more payout (e.g. 3:2 instead of 6:5) because there is a smaller chance of getting steamrolled.