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It's interesting to see the outrage about this. Everyone who has done a bit of research into this kind of broker knew this. It's the only way to get the commiss

It's interesting to see the outrage about this. Everyone who has done a bit of research into this kind of broker knew this. It's the only way to get the commissionless trading they advertise with. Just another case of "If you are not paying for it, you're not the customer; you're the product being sold".

belltaco 6y ago
Not really, the outrage is over a short of GME being a customer. If the headline was about Firm XYZ without a short in GME paying $100M it wouldn't be as newsworthy.
- Denvercoder9 6y ago
  You don't get to pick to which advertiser your data is sold either. You're just along for the ride with no hands on the wheel. I'm not defending business models built upon selling their users' data. I'm just saying that this is no surprise, and it was pretty inevitable to happen sooner or later.
- JumpCrisscross 6y ago
  > the outrage is over a short of GME being a customer Do we have any evidence Citadel is materially net short GME? They bailed out Melvin Capital. But Melvin Capital announced that they closed out their short position. And bailing out Melvin Capital isn't the same thing as assuming their positions.
  - cmmeur01 6y ago
    Please provide evidence they have closed their short other than them talking their portfolio.
    - SpicyLemonZest 6y ago
      Is there any concrete reason to suspect they're lying? Obviously none of us have directly seen Melvin's books, but there's a point where the contrary hypothesis just becomes unfalsifiable.
      - cmmeur01 6y ago
        Until they release their statements we have no way of knowing. If you want to take what they say at face value, go for it, but I don't believe them.
        anonymouse008 6y ago
        You can believe everything they put in writing. You just have to read it correctly.
  - deleted 6y ago
    [deleted]
  - anonymouse008 6y ago
    > But Melvin Capital announced that they closed out their short position. And bailing out Melvin Capital isn't the same thing as assuming their positions. Yeah, arm's length transactions are a means of providing truth to falsity, and perfectly crafted statements are in the same category. The only thing missing from these press releases is "to the best of my knowledge"
    - JumpCrisscross 6y ago
      > arm's length transactions are a means of providing truth to falsity, and perfectly crafted statements are in the same category Bailouts aren't arms-length transactions. They're highly involved. Melvin Capital isn't just a GameStop short. It has billions of other assets. But not all of those are liquid. Margin calls require liquidity, and Melvin didn't have many options other than fire selling the rest of their portfolio and taking a private bailout at exorbitant terms (but less egregious than the losses they would have incurred in a fire sale). From Citadel's perspective, why on earth would they assume the short positions? They're in the red. That is Melvin's investors' problem. The second-order problem, that of avoiding a fire sale of remaining assets, is what the bailout prevented. With respect to Melvin, I'm blown away that these trades were executed as unhedged shorts.
      - anonymouse008 6y ago
        > From Citadel's perspective, why on earth would they assume the short positions? They're in the red. That is Melvin's investors' problem. The second-order problem, that of avoiding a fire sale of remaining assets, is what the bailout prevented. Because: > With respect to Melvin, I'm blown away that these trades were executed as unhedged shorts. Because that ^ will take down a prime, and if it's your prime because you're buddies with your mentee... no sir. And to cap it off, dominos fall everywhere because of the Index Fund phenomenon if there's no longer 'liquidity' from these guys. Side note: You're smart as hell, I can tell from the few times we've interacted on this forum, and I appreciate the thoughtful responses. We need to figure out a way to trade info and get a beer. Edit: this could become a run on the banks, but instead it would be a run on equities... which is equity cost of capital worse than just withdrawing your dollars.
ryanSrich 6y ago
I see little outrage about this. The outrage is about illegally manipulating the market in broad daylight by preventing retail investors from purchasing a stock. Is a user expected to tolerate illegal activity because the businesses customer demands it of them? If you have any doubt what Robinhood is doing is illegal (setting aside that it's clearly morally reprehensible), then I encourage you to read the suit that was just filed https://www.courtlistener.com/recap/gov.uscourts.nysd.553175/gov.uscourts.nysd.553175.1.0.pdf https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...
- missedthecue 6y ago
  "The outrage is about illegally manipulating the market in broad daylight by preventing retail investors from purchasing a stock." There's a difference between preventing someone from buying a stock and telling them you're not going to assume the risk of making a market for them, which is what's going on here. You cannot force Citadel to make a market for your orders. They happen to result in the same situation, but the implications are completely different.
  - toast0 6y ago
    > You cannot force Citadel to make a market for your orders. That depends on the market maker contract Citadel has with the brokerage(s) and the exchange(s). Although, I don't think the contracts with exchanges are very tight; I don't know about the contracts with brokerages. IIRC, Nasdaq had (has?) a special order type for market makers who didn't want to actually make a market that would put in bid and ask at exactly the maximum contractually allowed spread away from last trade, and withdraw and replace them when any trades did occur; making it much harder to actually trade with the market maker.
    - missedthecue 6y ago
      Citadel would never ever put themselves in a situation where they contractually have to assume an unpredictable level of risk
- 6y ago
spelunker 6y ago
If you're one of the big and established brokerages you can provide commission-less trading through other means - portfolio management fees, doing bank things. For the smaller guys like RH though your point still stands.
runawaybottle 6y ago
It’s like if non-tech people suddenly find out Salesforce uses AWS and Microsoft Office suite.
dang 6y ago
(This comment was originally a reply to "Robinhood makes most of its money selling customer orders (2020)" https://news.ycombinator.com/item?id=25946626 https://news.ycombinator.com/item?id=25946626, but we've merged it into the main thread.)

belltaco 6y ago

Not really, the outrage is over a short of GME being a customer. If the headline was about Firm XYZ without a short in GME paying $100M it wouldn't be as newsworthy.

Denvercoder9 6y ago
You don't get to pick to which advertiser your data is sold either. You're just along for the ride with no hands on the wheel. I'm not defending business models built upon selling their users' data. I'm just saying that this is no surprise, and it was pretty inevitable to happen sooner or later.
JumpCrisscross 6y ago
> the outrage is over a short of GME being a customer Do we have any evidence Citadel is materially net short GME? They bailed out Melvin Capital. But Melvin Capital announced that they closed out their short position. And bailing out Melvin Capital isn't the same thing as assuming their positions.
- cmmeur01 6y ago
  Please provide evidence they have closed their short other than them talking their portfolio.
  - SpicyLemonZest 6y ago
    Is there any concrete reason to suspect they're lying? Obviously none of us have directly seen Melvin's books, but there's a point where the contrary hypothesis just becomes unfalsifiable.
    - cmmeur01 6y ago
      Until they release their statements we have no way of knowing. If you want to take what they say at face value, go for it, but I don't believe them.
      - anonymouse008 6y ago
        You can believe everything they put in writing. You just have to read it correctly.
- deleted 6y ago
  [deleted]
- anonymouse008 6y ago
  > But Melvin Capital announced that they closed out their short position. And bailing out Melvin Capital isn't the same thing as assuming their positions. Yeah, arm's length transactions are a means of providing truth to falsity, and perfectly crafted statements are in the same category. The only thing missing from these press releases is "to the best of my knowledge"
  - JumpCrisscross 6y ago
    > arm's length transactions are a means of providing truth to falsity, and perfectly crafted statements are in the same category Bailouts aren't arms-length transactions. They're highly involved. Melvin Capital isn't just a GameStop short. It has billions of other assets. But not all of those are liquid. Margin calls require liquidity, and Melvin didn't have many options other than fire selling the rest of their portfolio and taking a private bailout at exorbitant terms (but less egregious than the losses they would have incurred in a fire sale). From Citadel's perspective, why on earth would they assume the short positions? They're in the red. That is Melvin's investors' problem. The second-order problem, that of avoiding a fire sale of remaining assets, is what the bailout prevented. With respect to Melvin, I'm blown away that these trades were executed as unhedged shorts.
    - anonymouse008 6y ago
      > From Citadel's perspective, why on earth would they assume the short positions? They're in the red. That is Melvin's investors' problem. The second-order problem, that of avoiding a fire sale of remaining assets, is what the bailout prevented. Because: > With respect to Melvin, I'm blown away that these trades were executed as unhedged shorts. Because that ^ will take down a prime, and if it's your prime because you're buddies with your mentee... no sir. And to cap it off, dominos fall everywhere because of the Index Fund phenomenon if there's no longer 'liquidity' from these guys. Side note: You're smart as hell, I can tell from the few times we've interacted on this forum, and I appreciate the thoughtful responses. We need to figure out a way to trade info and get a beer. Edit: this could become a run on the banks, but instead it would be a run on equities... which is equity cost of capital worse than just withdrawing your dollars.

ryanSrich 6y ago

I see little outrage about this. The outrage is about illegally manipulating the market in broad daylight by preventing retail investors from purchasing a stock. Is a user expected to tolerate illegal activity because the businesses customer demands it of them? If you have any doubt what Robinhood is doing is illegal (setting aside that it's clearly morally reprehensible), then I encourage you to read the suit that was just filed https://www.courtlistener.com/recap/gov.uscourts.nysd.553175/gov.uscourts.nysd.553175.1.0.pdf https://www.courtlistener.com/recap/gov.uscourts.nysd.553175...

missedthecue 6y ago
"The outrage is about illegally manipulating the market in broad daylight by preventing retail investors from purchasing a stock." There's a difference between preventing someone from buying a stock and telling them you're not going to assume the risk of making a market for them, which is what's going on here. You cannot force Citadel to make a market for your orders. They happen to result in the same situation, but the implications are completely different.
- toast0 6y ago
  > You cannot force Citadel to make a market for your orders. That depends on the market maker contract Citadel has with the brokerage(s) and the exchange(s). Although, I don't think the contracts with exchanges are very tight; I don't know about the contracts with brokerages. IIRC, Nasdaq had (has?) a special order type for market makers who didn't want to actually make a market that would put in bid and ask at exactly the maximum contractually allowed spread away from last trade, and withdraw and replace them when any trades did occur; making it much harder to actually trade with the market maker.
  - missedthecue 6y ago
    Citadel would never ever put themselves in a situation where they contractually have to assume an unpredictable level of risk
6y ago

spelunker 6y ago

If you're one of the big and established brokerages you can provide commission-less trading through other means - portfolio management fees, doing bank things. For the smaller guys like RH though your point still stands.

runawaybottle 6y ago

It’s like if non-tech people suddenly find out Salesforce uses AWS and Microsoft Office suite.

dang 6y ago

(This comment was originally a reply to "Robinhood makes most of its money selling customer orders (2020)" https://news.ycombinator.com/item?id=25946626 https://news.ycombinator.com/item?id=25946626, but we've merged it into the main thread.)