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GME: Or, why we shouldn't underestimate “4chan with a Bloomberg terminal”

81 points by ed25519FUUU 6y ago

Miner49er 6y ago
Can someone explain how this is manipulation? Users on WSB saw the potential for a short squeeze and bought on it (it's a common trading strategy to play highly shorted stocks) and they told other users about the idea. Large investors like Ryan Cohen and Michael Burry were on this trade, too, for a long time.
- hehehaha 6y ago
  It’s not if you’re retail but there are signs to indicate that professional traders drummed up retail over on r/wsb without any disclosures.
  - Miner49er 6y ago
    What signs?
  - s1artibartfast 6y ago
    Even if that were true, would it constitute manipulation? What disclosures are required for stating opinion and publicly available information. I can find 1000 articles on google finance.
    - hehehaha 6y ago
      It’s a problem if let’s say a hedge fund buys a struggling stock such as AMC for example and decides to plaster the entire sub using hundreds if not thousands of manufactured accounts? It’s been happening for awhile over on r/wsb. It’s basically a political misinformation campaign for stocks. DL makes it very easy to create believable live accounts.
- Miner49er 6y ago
  Another thing, GME is just one of many stocks that appear to be squeezing right now. These other stocks that might be squeezing (like DDS, TR?, FIZZ, BBBY) are barely mentioned on WSB. What's causing all these stocks to be squeezing at the same time? I'm not even sure we should be saying GME was WSB's doing, although it is a fun story.
  - jdhn 6y ago
    BBBY has been brought up in a few DD (due diligence) posts. If you go to WSB and search for BBBY you'll come acorss them. GME is obviously the focus of attention, and therefore the lions share of posts are about them.
  - perl4ever 6y ago
    Pattern recognition? It's not hard to find a list of the most shorted stocks currently, and think that you can buy them "earlier" than GME. By Monday, several were already way up, although not as extreme. I think the real world meaning of this, is that people shorted stocks that were perhaps in temporary distress, but many if not all of them could be saved if they got a lot of cash, which they can do, if they suddenly can sell stock at an inflated price. The short theses could have been self-fulfilling, but now things are going the other way. It's not really a violation of objective facts if the market decides to give these companies more capital. Who's to say they shouldn't get it? Especially with all the money showered on IPOs lately? I used to think short selling was honorable, misunderstood, etc. but if it really is a self-fulfilling thing, maybe it isn't a social good, especially when the viability of a company is affected by the temporary situation with covid. Maybe GME and similar should get a year's lifeline, for the good of all their stakeholders, because a lot could and almost certainly will change.
    - Miner49er 6y ago
      They've had high short float for months though? It could've happened at any point, I guess I'm just wondering why now, and why all at once? I suppose you're probably right, it could just be people trying to replicate GME.
- salawat 6y ago
  I have issues with where the line is actually drawn for market manipulation. It sure looks like the way it's applied is "if you inconvenience institutional investors, you're a market manipulator". As I've not seen much in the way of mitigating institutional investment firms capacity to do the same in the other direction vs retail.
- LatteLazy 6y ago
  You're not meant to coordinate your trades with other entities. That alone is manipulation I believe. You're meant to buy(sell) because you like the idea of (not) owning something. That means you don't want to move the price. If you move the price you can't buy more at the same great price later. Wanting to move the price is sort of the smoking gun of manipulation. Being able to change the price in the short term means the price is "wrong". A wrong price cheats all sorts of market participants even ones who don't trade. Securities fraud is defined as any action that "induces investors to make purchase or sale decisions on the basis of false information"[0]. A false price is a great false piece of info to manufacture. I'm watching with interest for when WSB attracts the interest of the regulators. Being retail means they're generally ignored, until they're not. [0]: https://en.wikipedia.org/wiki/Securities_fraud https://en.wikipedia.org/wiki/Securities_fraud
  - uxp100 6y ago
    Has the SEC ever considered the market value of a stock false information in this way before? Edit: and as to your first point, it has always been legal to say, hey, I am buying this stock, I like it, I recommend you buy it too. That alone is definitely not manipulation.
    - LatteLazy 6y ago
      Here's a case from 2019: https://www.sec.gov/news/press-release/2019-216 https://www.sec.gov/news/press-release/2019-216 Drove prices down, bought, drove prices up, sold. The reported actions of WSB is basically the second half of this with the twist that they think they can use large short positions as leverage to push prices up more. It's actually a very common, old form of fraud. The question is whether regulators care to enforce the rules. It's what Leonardo Decaprio is guilty of in Wolf of Wallstreet.
      - waheoo 6y ago
        Id say selling naked calls is the real fraud here. Why is it the fault of wsb for exploiting a market failure?
hehehaha 6y ago
This is right on the money. Retail traders are getting used either way and both ways.
- Proven 6y ago
  Nonsense. Robinhooders are trading because they want to make profit from other traders and because of no trading fees, not because they must.
nicholastsmith 6y ago
I really like this take. The whole time (pandemic onward) I've been thinking: "how can a bunch of small potatoes on WSB actually make such an impact." This neatly explains it... It's the HFT amplifying these actions.
- seabird 6y ago
  This has very little to do with HFT. I would argue that the person who wrote this Twitter thread really quickly veers off into the territory of just-plain-wrong. What's more likely, - Citadel is paying multiple billions to get in on a firm that's so talented that they managed to take on this GME position, or - Citadel is a market maker that has written a shitload of near-naked call options and now needs to deliver on them? HFT is not the root of all evil. Citadel isn't making a killing off of frontrunning retail investors that have a Robinhood account containing $137. Odds are pretty damn good that they're in hot water with an options position and need to ensure that Melvin stays afloat to try and keep as many contract OTM as they can.
llampx 6y ago
What this whole saga has brought to light is how much the market is manipulated, mostly to accelerate the wealth transfer from the retail investor (boomer, millenial, zoomer, it doesn't matter) to the insitutional investors and hedge funds - the smart money. We have to give up the thought that the markets move as they do on pure investor sentiment, and face the reality that a large part of price movement is manufactured to suit the big money.
- jakupovic 6y ago
  This was always the case. Nothing has changed.
- Miner49er 6y ago
  Literally the opposite is happening here though, for the most part.
  - FireBeyond 6y ago
    And it's that novelty that makes this newsworthy.
toomuchtodo 6y ago
https://threadreaderapp.com/thread/1353890766800621569.html https://threadreaderapp.com/thread/1353890766800621569.html
Imnimo 6y ago
As someone who knows basically nothing about stocks, I still don't totally understand whether this is a situation where the WSB guys are going to be left holding the bag, but at least they will have screwed over the short sellers and so it'll be worth it to them, or if they're actually going to come out way ahead? Like surely GME stock can't be worth 150 or whatever once this short squeeze business is done with. So what's the offramp look like?
- Miner49er 6y ago
  Short squeeze like this have happened before. The most famous probably being Volkswagen in 2008, when they briefly became the most valuable company in the world. In that case hedge fund managers lost $30 billion, and Porsche (who orchestrated it) came out with $10 billion. https://moxreports.com/vw-infinity-squeeze/ https://moxreports.com/vw-infinity-squeeze/ It's looking like GME is going to be similar, but at some point it'll basically come crashing down once all the shorts cover and such.
- deleted 6y ago
  [deleted]
hntrader 6y ago
Step 0 and step 2 are false, but in typical Twitter fashion uttered with such confidence. Citadel can fill those trades internally for better-than-market price, but it's illegal to front-run them. It's not a practice I agree with, but it's not front-running. HFT surely made money market making GME, as they probably did with many other instruments today. There's nothing unique in the HFT space about GME.
- zarkov99 6y ago
  How do you define front running?
  - jVinc 6y ago
    Front running is simplistically placing your own orders in front of your customers orders based on the knowledge that the customers orders will be executed. Buying at better than requested rates and reselling to a customer based on a request from that customer to buy at a specific point is not front-running the customers order, it's literally just carrying out the customers order, but pocketing the difference between what you can find buy the asset at and what the customer decided to pay. Think of this, you pay someone a fixed amount to buy you a PS5. When he gets to the shop there is a sale, so he pays less than he expected and less than you expected, but he's fulfilling your order at the agreed price so he pockets the difference. That's not front-running. He is making money fulfilling your order, but it's not front-running. Now second scenario imagine you again pay a fixed amount for him to get you a PS5. He comes back saying "sorry, but they didn't have any left ... but I just happen to have bought 4 myself before I could fulfill your order, I'm willing to sell you one at an elevated price". That's front-running. He executed his own order, in front of the one he was carrying out for you, with the knowledge that he would be able to make money because of your order. Note that the illegal part is not "making money by buying and selling something". It's perfectly legal for someone to buy the last PS5 and resell it at a higher price to make money. The illegal part carrying out such an order based on the inside knowledge of your pending order and front-running your order with their own. Naturally this is rather fuzzy explanation, take it with a grain of salt.
exabrial 6y ago
I don't understand _how on earth_ Robinhood's relationship with HFT firms is even legal.
- pgwhalen 6y ago
  I don't want to come out strongly in favor of payment-for-order-flow (the term for RH's relationship with HFTs), but since you seem so incredulous about it, let me offer the non-cynical explanation to help build intuition: RH traders receive better prices than they otherwise would because RH routes their orders to specific dealers. RH is paid for this, and theoretically passes on some of that payment in the form of commission-free trades. It's more complicated than that (even defining "better prices" is an unsolvable problem), but if you take that at face value, it's easy to understand by the practice isn't immediately regulated out of existence.
jimmydef 6y ago
HFTs do not create demand. Most of the time, they flatten their positions at the end of the day. As such, their impact on the market is minimal. And anyone who can claim that HFTs front run trades simply do not understand the basics of what is happening. HFTs simply make money off being the glue in fragmented markets.
- calmworm 6y ago
  Care to explain further or provide a link or two Specifically on the “being the glue” part.
  - bigtiger 6y ago
    Sometimes identical products trade at different venues, often different products at different venues are highly correlated. HFTs reduce the friction of value transfer between these many different markets. They are, in a sense, building the neurons that make up the global economic central nervous system. It's a natural and healthy market phenomenon. The benefits are systemic, which requires some perspective to appreciate. In the course of a decade or two, HFT has permanently cemented itself into the fabric of the finance. All this talk about front running is uninformed utter nonsense.
blackrock 6y ago
Isn’t this already known? This is what HFT does. They are literally, front runners. This is why they spend millions of dollars on exotic telecom equipment, just to shave off milliseconds from the latency. So, for every share you trade on Robin Hood, they make a penny or a fraction of a penny. Easy money. It’s even easier than taking candy from a baby. You never even knew that you were fleeced of that penny. At least a baby cries when you take his candy. You as a retail investor or day trader cannot play that volume game with the HFTs, so there’s no point trying. But you can still do other strategies, like swing trading.
- ed25519FUUU 6y ago
  > You never even knew that you were fleeced of that penny. I personally felt much more fleeced paying $9.99 a trade before Robinhood showed up.
- imtringued 6y ago
  You can also do arbitrage between exchanges with HFT. The faster a trade completes the lower the spread.
chid 6y ago
https://www.reddit.com/r/wallstreetbets/comments/l5nphz/gme_yolo_update_jan_26_2021/ https://www.reddit.com/r/wallstreetbets/comments/l5nphz/gme_... this guy has a on paper gain of ~22M!
imtringued 6y ago
Just watch the louis rossman video. Short selling 100% or more of the float should be illegal. That's market manipulation. Why allow wallstreet to make money off of price movements they caused themselves? Why short sell only to short sell even more and never actually close your shorts? It's like a bubble where everything is going down and once the bubble bursts it shoots back up. The reason they do it is that it is easier to drive the price of something down than up.

81 points by ed25519FUUU 6y ago

Can someone explain how this is manipulation? Users on WSB saw the potential for a short squeeze and bought on it (it's a common trading strategy to play highly shorted stocks) and they told other users about the idea. Large investors like Ryan Cohen and Michael Burry were on this trade, too, for a long time.

hehehaha 6y ago
It’s not if you’re retail but there are signs to indicate that professional traders drummed up retail over on r/wsb without any disclosures.
- Miner49er 6y ago
  What signs?
- s1artibartfast 6y ago
  Even if that were true, would it constitute manipulation? What disclosures are required for stating opinion and publicly available information. I can find 1000 articles on google finance.
  - hehehaha 6y ago
    It’s a problem if let’s say a hedge fund buys a struggling stock such as AMC for example and decides to plaster the entire sub using hundreds if not thousands of manufactured accounts? It’s been happening for awhile over on r/wsb. It’s basically a political misinformation campaign for stocks. DL makes it very easy to create believable live accounts.
Miner49er 6y ago
Another thing, GME is just one of many stocks that appear to be squeezing right now. These other stocks that might be squeezing (like DDS, TR?, FIZZ, BBBY) are barely mentioned on WSB. What's causing all these stocks to be squeezing at the same time? I'm not even sure we should be saying GME was WSB's doing, although it is a fun story.
- jdhn 6y ago
  BBBY has been brought up in a few DD (due diligence) posts. If you go to WSB and search for BBBY you'll come acorss them. GME is obviously the focus of attention, and therefore the lions share of posts are about them.
- perl4ever 6y ago
  Pattern recognition? It's not hard to find a list of the most shorted stocks currently, and think that you can buy them "earlier" than GME. By Monday, several were already way up, although not as extreme. I think the real world meaning of this, is that people shorted stocks that were perhaps in temporary distress, but many if not all of them could be saved if they got a lot of cash, which they can do, if they suddenly can sell stock at an inflated price. The short theses could have been self-fulfilling, but now things are going the other way. It's not really a violation of objective facts if the market decides to give these companies more capital. Who's to say they shouldn't get it? Especially with all the money showered on IPOs lately? I used to think short selling was honorable, misunderstood, etc. but if it really is a self-fulfilling thing, maybe it isn't a social good, especially when the viability of a company is affected by the temporary situation with covid. Maybe GME and similar should get a year's lifeline, for the good of all their stakeholders, because a lot could and almost certainly will change.
  - Miner49er 6y ago
    They've had high short float for months though? It could've happened at any point, I guess I'm just wondering why now, and why all at once? I suppose you're probably right, it could just be people trying to replicate GME.
salawat 6y ago
I have issues with where the line is actually drawn for market manipulation. It sure looks like the way it's applied is "if you inconvenience institutional investors, you're a market manipulator". As I've not seen much in the way of mitigating institutional investment firms capacity to do the same in the other direction vs retail.
LatteLazy 6y ago
You're not meant to coordinate your trades with other entities. That alone is manipulation I believe. You're meant to buy(sell) because you like the idea of (not) owning something. That means you don't want to move the price. If you move the price you can't buy more at the same great price later. Wanting to move the price is sort of the smoking gun of manipulation. Being able to change the price in the short term means the price is "wrong". A wrong price cheats all sorts of market participants even ones who don't trade. Securities fraud is defined as any action that "induces investors to make purchase or sale decisions on the basis of false information"[0]. A false price is a great false piece of info to manufacture. I'm watching with interest for when WSB attracts the interest of the regulators. Being retail means they're generally ignored, until they're not. [0]: https://en.wikipedia.org/wiki/Securities_fraud https://en.wikipedia.org/wiki/Securities_fraud
- uxp100 6y ago
  Has the SEC ever considered the market value of a stock false information in this way before? Edit: and as to your first point, it has always been legal to say, hey, I am buying this stock, I like it, I recommend you buy it too. That alone is definitely not manipulation.
  - LatteLazy 6y ago
    Here's a case from 2019: https://www.sec.gov/news/press-release/2019-216 https://www.sec.gov/news/press-release/2019-216 Drove prices down, bought, drove prices up, sold. The reported actions of WSB is basically the second half of this with the twist that they think they can use large short positions as leverage to push prices up more. It's actually a very common, old form of fraud. The question is whether regulators care to enforce the rules. It's what Leonardo Decaprio is guilty of in Wolf of Wallstreet.
    - waheoo 6y ago
      Id say selling naked calls is the real fraud here. Why is it the fault of wsb for exploiting a market failure?

hehehaha 6y ago

This is right on the money. Retail traders are getting used either way and both ways.

Proven 6y ago
Nonsense. Robinhooders are trading because they want to make profit from other traders and because of no trading fees, not because they must.

nicholastsmith 6y ago

I really like this take. The whole time (pandemic onward) I've been thinking: "how can a bunch of small potatoes on WSB actually make such an impact." This neatly explains it... It's the HFT amplifying these actions.

seabird 6y ago
This has very little to do with HFT. I would argue that the person who wrote this Twitter thread really quickly veers off into the territory of just-plain-wrong. What's more likely, - Citadel is paying multiple billions to get in on a firm that's so talented that they managed to take on this GME position, or - Citadel is a market maker that has written a shitload of near-naked call options and now needs to deliver on them? HFT is not the root of all evil. Citadel isn't making a killing off of frontrunning retail investors that have a Robinhood account containing $137. Odds are pretty damn good that they're in hot water with an options position and need to ensure that Melvin stays afloat to try and keep as many contract OTM as they can.

llampx 6y ago

What this whole saga has brought to light is how much the market is manipulated, mostly to accelerate the wealth transfer from the retail investor (boomer, millenial, zoomer, it doesn't matter) to the insitutional investors and hedge funds - the smart money. We have to give up the thought that the markets move as they do on pure investor sentiment, and face the reality that a large part of price movement is manufactured to suit the big money.

jakupovic 6y ago
This was always the case. Nothing has changed.
Miner49er 6y ago
Literally the opposite is happening here though, for the most part.
- FireBeyond 6y ago
  And it's that novelty that makes this newsworthy.

toomuchtodo 6y ago

https://threadreaderapp.com/thread/1353890766800621569.html https://threadreaderapp.com/thread/1353890766800621569.html

Imnimo 6y ago

As someone who knows basically nothing about stocks, I still don't totally understand whether this is a situation where the WSB guys are going to be left holding the bag, but at least they will have screwed over the short sellers and so it'll be worth it to them, or if they're actually going to come out way ahead? Like surely GME stock can't be worth 150 or whatever once this short squeeze business is done with. So what's the offramp look like?

Miner49er 6y ago
Short squeeze like this have happened before. The most famous probably being Volkswagen in 2008, when they briefly became the most valuable company in the world. In that case hedge fund managers lost $30 billion, and Porsche (who orchestrated it) came out with $10 billion. https://moxreports.com/vw-infinity-squeeze/ https://moxreports.com/vw-infinity-squeeze/ It's looking like GME is going to be similar, but at some point it'll basically come crashing down once all the shorts cover and such.
deleted 6y ago
[deleted]

hntrader 6y ago

Step 0 and step 2 are false, but in typical Twitter fashion uttered with such confidence. Citadel can fill those trades internally for better-than-market price, but it's illegal to front-run them. It's not a practice I agree with, but it's not front-running. HFT surely made money market making GME, as they probably did with many other instruments today. There's nothing unique in the HFT space about GME.

zarkov99 6y ago
How do you define front running?
- jVinc 6y ago
  Front running is simplistically placing your own orders in front of your customers orders based on the knowledge that the customers orders will be executed. Buying at better than requested rates and reselling to a customer based on a request from that customer to buy at a specific point is not front-running the customers order, it's literally just carrying out the customers order, but pocketing the difference between what you can find buy the asset at and what the customer decided to pay. Think of this, you pay someone a fixed amount to buy you a PS5. When he gets to the shop there is a sale, so he pays less than he expected and less than you expected, but he's fulfilling your order at the agreed price so he pockets the difference. That's not front-running. He is making money fulfilling your order, but it's not front-running. Now second scenario imagine you again pay a fixed amount for him to get you a PS5. He comes back saying "sorry, but they didn't have any left ... but I just happen to have bought 4 myself before I could fulfill your order, I'm willing to sell you one at an elevated price". That's front-running. He executed his own order, in front of the one he was carrying out for you, with the knowledge that he would be able to make money because of your order. Note that the illegal part is not "making money by buying and selling something". It's perfectly legal for someone to buy the last PS5 and resell it at a higher price to make money. The illegal part carrying out such an order based on the inside knowledge of your pending order and front-running your order with their own. Naturally this is rather fuzzy explanation, take it with a grain of salt.

exabrial 6y ago

I don't understand _how on earth_ Robinhood's relationship with HFT firms is even legal.

pgwhalen 6y ago
I don't want to come out strongly in favor of payment-for-order-flow (the term for RH's relationship with HFTs), but since you seem so incredulous about it, let me offer the non-cynical explanation to help build intuition: RH traders receive better prices than they otherwise would because RH routes their orders to specific dealers. RH is paid for this, and theoretically passes on some of that payment in the form of commission-free trades. It's more complicated than that (even defining "better prices" is an unsolvable problem), but if you take that at face value, it's easy to understand by the practice isn't immediately regulated out of existence.

jimmydef 6y ago

HFTs do not create demand. Most of the time, they flatten their positions at the end of the day. As such, their impact on the market is minimal. And anyone who can claim that HFTs front run trades simply do not understand the basics of what is happening. HFTs simply make money off being the glue in fragmented markets.

calmworm 6y ago
Care to explain further or provide a link or two Specifically on the “being the glue” part.
- bigtiger 6y ago
  Sometimes identical products trade at different venues, often different products at different venues are highly correlated. HFTs reduce the friction of value transfer between these many different markets. They are, in a sense, building the neurons that make up the global economic central nervous system. It's a natural and healthy market phenomenon. The benefits are systemic, which requires some perspective to appreciate. In the course of a decade or two, HFT has permanently cemented itself into the fabric of the finance. All this talk about front running is uninformed utter nonsense.

blackrock 6y ago

Isn’t this already known? This is what HFT does. They are literally, front runners. This is why they spend millions of dollars on exotic telecom equipment, just to shave off milliseconds from the latency. So, for every share you trade on Robin Hood, they make a penny or a fraction of a penny. Easy money. It’s even easier than taking candy from a baby. You never even knew that you were fleeced of that penny. At least a baby cries when you take his candy. You as a retail investor or day trader cannot play that volume game with the HFTs, so there’s no point trying. But you can still do other strategies, like swing trading.

ed25519FUUU 6y ago
> You never even knew that you were fleeced of that penny. I personally felt much more fleeced paying $9.99 a trade before Robinhood showed up.
imtringued 6y ago
You can also do arbitrage between exchanges with HFT. The faster a trade completes the lower the spread.

chid 6y ago

https://www.reddit.com/r/wallstreetbets/comments/l5nphz/gme_yolo_update_jan_26_2021/ https://www.reddit.com/r/wallstreetbets/comments/l5nphz/gme_... this guy has a on paper gain of ~22M!

imtringued 6y ago

Just watch the louis rossman video. Short selling 100% or more of the float should be illegal. That's market manipulation. Why allow wallstreet to make money off of price movements they caused themselves? Why short sell only to short sell even more and never actually close your shorts? It's like a bubble where everything is going down and once the bubble bursts it shoots back up. The reason they do it is that it is easier to drive the price of something down than up.