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Someone I know who works at a hedge fund told me it was not a secret that retail order flow (trade requests from “ordinary people” on scottrade and etrade) was
by bananabiscuit 8y ago
Someone I know who works at a hedge fund told me it was not a secret that retail order flow (trade requests from “ordinary people” on scottrade and etrade) was so misguided that, if it was allowed by the SEC, you could end up positive just by betting against it by taking the opposite position.
Maybe JPmorgan has some way of doing just that without breaking regulations.
- dubhrosa 8y agoThe hedge funds don't bet against it, they actually pay the large retail brokers for this order flow, ie they execute it for them, because it is non-alpha-bearing, ie generally clueless, it gives them opportunities to cross their own trading flow (ie if they are selling and retail is buying, thereby getting a trade they were going to do anyway done for no cost at the current mid-price in the market) with the rest they can aggregate it with their own flow, and since it's not alpha-bearing, they use it as inventory in their market making algos, ie they execute it passively, always on the near side of the spread, and also pick up the rebate from the exchange for being a liquidity provider.