4 ms·

This looks like a purposeful distraction from Citadel’s cash cow of “payment for order flow”, which essentially allows them to cache orders at prices delivered

This looks like a purposeful distraction from Citadel’s cash cow of “payment for order flow”, which essentially allows them to cache orders at prices delivered to consumers less profitable than what they realize when matching at slightly different times, advantageous to Citadel, from their cache. Consumers using Robinhood famously are handing profit to Citadel, and the Robinhood founders[edit]/shareholders. They kick back a fraction of their profit to ensure apathetically timed orders keep being funneled through Citadel.

drexlspivey 3y ago
> at prices delivered to consumers less profitable than what they realize That’s not true, HFT firms like Citadel are required to improve on the national bid/ask spread. They are saving the consumers money compared to their orders being sent to NYSE or NASDAQ
- lumb63 3y ago
  On a given trade, they might be required to provide a benefit to their customers, but what are they able to do with the combined data that is all the others they handle? Surely they are able to manipulate securities based on this data and short/long securities in ways that are typically in opposition to retail, thus costing their “customers” money.
  - govg 3y ago
    How do they "manipulate" this data in any form? That is not how any of this works, it just sounds like a conspiracy theory talking point to keep saying citadel are conspiring against everyone.
  - helsinkiandrew 3y ago
    This is nonsense. This isn’t a data mining opportunity. One of the reasons this works is that retail investors are relatively uninformed compared with larger players that are selling large blocks of shares. There are usually as many retail investors selling as buying smallish lots that doesn’t create a large price movement.
- jjtheblunt 3y ago
  How exactly does that work? FINRA requires reasonable effort, which is curious.
SamReidHughes 3y ago
As a retail customer that has done volatility trading I've used RH and other brokers that route through Citadel, because they gave better fills/commissions that made my returns more profitable. The reason for this is that they can give tighter fills to small scale (and presumably dumb) retail investors. > and the Robinhood founders. Do you mean the Robinhood shareholders?
- jjtheblunt 3y ago
  Yep thank you
- dpflan 3y ago
  Interesting, I’m having trouble understanding how in Robinhood you are aware that you’re benefitting from the Citadel flow, how do you see/know you are getting better fills/commissions? I am not aware of how you would know Citadel is involved in your activities. Are you comparing the same trade on different platforms and see that RH is better? Could you provide an example (if you do not want to expose your trading strategies that is understandable)?
  - deleted 3y ago
    [deleted]
  - SamReidHughes 3y ago
    The active orders on some brokers tell you how they got routed (i.e. via "Citadel"). I did some testing, with similar trades. Some of the difference is just from the commissions structure -- if it's not a percentage of contract price, smaller priced contracts benefit from lower commissions. I was buying and selling long and short strangles and straddles or iron condors. Sometimes strangles with farther out contract legs, at prices like 0.40-0.80, would use Robinhood (simply because I had an account with them, and not every other broker), while nearer contract legs at higher prices on the same underlying would use Fidelity or IBKR. Generally I was entering and exiting, not holding to expiry, so I had 0.65x4+fees = 2.70 in commissions for a given contract pair on Fidelity. Nowadays it'd often be about 2.05 on Fidelity because they let you close contracts under .65 for free. I didn't think to negotiate commissions, but I was surely too much of a small fry for that.
opportune 3y ago
PFOF has to beat the best market price at execution time. How is Citadel taking robinhood consumers’ profit then? In case you’re wondering how this is even possible to be a win-win, it’s because retail order flow is considered non-toxic, roughly meaning it’s OK to market-make against because it’s roughly symmetric and not backed by a market moving signal. So creating an arena for retail orders to fill each others’ orders can allow for legitimately better fills because it’s safer for the market maker. From what I understand PFOF is only problematically profitable in the options market where NBBO spreads can be quite wide, but I’m pretty sure Citadel is not even a major player there.
- jjtheblunt 3y ago
  > PFOF has to beat the best market price at execution time. What’s an example?
  - helsinkiandrew 3y ago
    This article has a good explanation: https://www.bloomberg.com/opinion/articles/2021-02-05/robinhood-gamestop-saga-pressures-payment-for-order-flow https://www.bloomberg.com/opinion/articles/2021-02-05/robinh... https://archive.is/ij2Q3 https://archive.is/ij2Q3
    - jjtheblunt 3y ago
      thanks
- metaphor 3y ago
  > ...but I’m pretty sure Citadel is not even a major player [in the options market]. A quick sanity check suggests Vanguard[1], Fidelity[2], Schwab[3], and TD Ameritrade[4] disagree with your assertion. [1] https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff [2] https://clearingcustody.fidelity.com/trade-execution-quality/sec-rule-606 https://clearingcustody.fidelity.com/trade-execution-quality... [3] https://www.schwab.com/legal/order-routing-1 https://www.schwab.com/legal/order-routing-1 [4] https://www.tdameritrade.com/disclosure.html https://www.tdameritrade.com/disclosure.html
zie 3y ago
Citadel makes money with PFOF for sure, but it is usually a net good for retail investors. If it wasn't the brokerages wouldn't be allowed to do it: https://www.finra.org/sites/default/files/2021-06/Regulatory-Notice-21-23.pdf https://www.finra.org/sites/default/files/2021-06/Regulatory...
- rschneid 3y ago
  [flagged]
puppymaster 3y ago
expect to read this on wsb, not here. Multiple research papers have shown PFOF is not as detrimental as it made out to be, and it certain cases actually help retail investors (narrow spreads, zero fee trading, better fills). Some retail traders tend to externalize their loses by blaming it on exchanges, Nancy Pelosi and the 'system'.
- unmole 3y ago
  > expect to read this on wsb, not here. From past threads this is exactly this kind of nonsense I expected: People with a tenuous grasp on reality chiming in with moronic conspiracy theories. WSB atleast acknowledges that they are a bunch of retards.
  - jjtheblunt 3y ago
    Sometimes the folks you call retards actually work in trading software with big institutional banking clients.
- jjtheblunt 3y ago
  can you link to "wsb" so i can look up such research papers? "not as detrimental" seems like you're saying it still is profitable for Citadel? How would retail traders blame Pelosi (but I believe you that they would)? The Pelosi's are basically wealthy because they're in their 80s and Mr Pelosi bought early cheap stock in many successful Silicon Valley (then) startups.
helsinkiandrew 3y ago
Can you provide evidence that PFOF is harming retail traders? studies keep showing the contrary. https://www.barrons.com/articles/payment-for-order-flow-sec-51661280732 https://www.barrons.com/articles/payment-for-order-flow-sec-... > In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price. > But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239
- bboygravity 3y ago
  That's not really surprising though. First Citadel destroys lit markets by having the majority of US orders routed to them for dark execution using things like Citadel Connect (less regulated and worse than a dark pool, which they also love by the way) and then they scream "look we give you better prices than you can get at the lit markets that we just destroyed (after literally front-running you)". Please love us, we're doing god's work! Sidenote: like Madoff there's a massive conflict of interest where Ken Griffin owns both a (huge) market maker business as well as a hedge fund (that had 64 billion in securities sold, not yet purchased "at fair value" on its balance sheet against some 4 billion in assets). PS: I'm just going to call it. That CEO Zhang doesn't exist and is generated by AI, just to distract from all the massive Citadel crime. Maybe tin foil, maybe not. PS PS: Citadel need to dissapear and Griffin needs to be in jail. He is Madoff 2.0 supercharged.
- laratied 3y ago
  The people who think retail is being harmed could not have traded 15 years ago. Anyone who thinks things were better for retail back in the day with at least $5+ per side and some guy in the middle in NY or Chicago making a market on a floor is a moron. There is just no other way to put it. Markets in 2023 is an absolute dream for retail.

drexlspivey 3y ago

> at prices delivered to consumers less profitable than what they realize That’s not true, HFT firms like Citadel are required to improve on the national bid/ask spread. They are saving the consumers money compared to their orders being sent to NYSE or NASDAQ

lumb63 3y ago
On a given trade, they might be required to provide a benefit to their customers, but what are they able to do with the combined data that is all the others they handle? Surely they are able to manipulate securities based on this data and short/long securities in ways that are typically in opposition to retail, thus costing their “customers” money.
- govg 3y ago
  How do they "manipulate" this data in any form? That is not how any of this works, it just sounds like a conspiracy theory talking point to keep saying citadel are conspiring against everyone.
- helsinkiandrew 3y ago
  This is nonsense. This isn’t a data mining opportunity. One of the reasons this works is that retail investors are relatively uninformed compared with larger players that are selling large blocks of shares. There are usually as many retail investors selling as buying smallish lots that doesn’t create a large price movement.
jjtheblunt 3y ago
How exactly does that work? FINRA requires reasonable effort, which is curious.

SamReidHughes 3y ago

As a retail customer that has done volatility trading I've used RH and other brokers that route through Citadel, because they gave better fills/commissions that made my returns more profitable. The reason for this is that they can give tighter fills to small scale (and presumably dumb) retail investors. > and the Robinhood founders. Do you mean the Robinhood shareholders?

jjtheblunt 3y ago
Yep thank you
dpflan 3y ago
Interesting, I’m having trouble understanding how in Robinhood you are aware that you’re benefitting from the Citadel flow, how do you see/know you are getting better fills/commissions? I am not aware of how you would know Citadel is involved in your activities. Are you comparing the same trade on different platforms and see that RH is better? Could you provide an example (if you do not want to expose your trading strategies that is understandable)?
- deleted 3y ago
  [deleted]
- SamReidHughes 3y ago
  The active orders on some brokers tell you how they got routed (i.e. via "Citadel"). I did some testing, with similar trades. Some of the difference is just from the commissions structure -- if it's not a percentage of contract price, smaller priced contracts benefit from lower commissions. I was buying and selling long and short strangles and straddles or iron condors. Sometimes strangles with farther out contract legs, at prices like 0.40-0.80, would use Robinhood (simply because I had an account with them, and not every other broker), while nearer contract legs at higher prices on the same underlying would use Fidelity or IBKR. Generally I was entering and exiting, not holding to expiry, so I had 0.65x4+fees = 2.70 in commissions for a given contract pair on Fidelity. Nowadays it'd often be about 2.05 on Fidelity because they let you close contracts under .65 for free. I didn't think to negotiate commissions, but I was surely too much of a small fry for that.

opportune 3y ago

PFOF has to beat the best market price at execution time. How is Citadel taking robinhood consumers’ profit then? In case you’re wondering how this is even possible to be a win-win, it’s because retail order flow is considered non-toxic, roughly meaning it’s OK to market-make against because it’s roughly symmetric and not backed by a market moving signal. So creating an arena for retail orders to fill each others’ orders can allow for legitimately better fills because it’s safer for the market maker. From what I understand PFOF is only problematically profitable in the options market where NBBO spreads can be quite wide, but I’m pretty sure Citadel is not even a major player there.

jjtheblunt 3y ago
> PFOF has to beat the best market price at execution time. What’s an example?
- helsinkiandrew 3y ago
  This article has a good explanation: https://www.bloomberg.com/opinion/articles/2021-02-05/robinhood-gamestop-saga-pressures-payment-for-order-flow https://www.bloomberg.com/opinion/articles/2021-02-05/robinh... https://archive.is/ij2Q3 https://archive.is/ij2Q3
  - jjtheblunt 3y ago
    thanks
metaphor 3y ago
> ...but I’m pretty sure Citadel is not even a major player [in the options market]. A quick sanity check suggests Vanguard[1], Fidelity[2], Schwab[3], and TD Ameritrade[4] disagree with your assertion. [1] https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff https://nms606.karngroup.com/vgrd/606a/2023Q1/588e3c62ff [2] https://clearingcustody.fidelity.com/trade-execution-quality/sec-rule-606 https://clearingcustody.fidelity.com/trade-execution-quality... [3] https://www.schwab.com/legal/order-routing-1 https://www.schwab.com/legal/order-routing-1 [4] https://www.tdameritrade.com/disclosure.html https://www.tdameritrade.com/disclosure.html

zie 3y ago

Citadel makes money with PFOF for sure, but it is usually a net good for retail investors. If it wasn't the brokerages wouldn't be allowed to do it: https://www.finra.org/sites/default/files/2021-06/Regulatory-Notice-21-23.pdf https://www.finra.org/sites/default/files/2021-06/Regulatory...

rschneid 3y ago
[flagged]

puppymaster 3y ago

expect to read this on wsb, not here. Multiple research papers have shown PFOF is not as detrimental as it made out to be, and it certain cases actually help retail investors (narrow spreads, zero fee trading, better fills). Some retail traders tend to externalize their loses by blaming it on exchanges, Nancy Pelosi and the 'system'.

unmole 3y ago
> expect to read this on wsb, not here. From past threads this is exactly this kind of nonsense I expected: People with a tenuous grasp on reality chiming in with moronic conspiracy theories. WSB atleast acknowledges that they are a bunch of retards.
- jjtheblunt 3y ago
  Sometimes the folks you call retards actually work in trading software with big institutional banking clients.
jjtheblunt 3y ago
can you link to "wsb" so i can look up such research papers? "not as detrimental" seems like you're saying it still is profitable for Citadel? How would retail traders blame Pelosi (but I believe you that they would)? The Pelosi's are basically wealthy because they're in their 80s and Mr Pelosi bought early cheap stock in many successful Silicon Valley (then) startups.

helsinkiandrew 3y ago

Can you provide evidence that PFOF is harming retail traders? studies keep showing the contrary. https://www.barrons.com/articles/payment-for-order-flow-sec-51661280732 https://www.barrons.com/articles/payment-for-order-flow-sec-... > In an Aug. 13 working paper, five finance professors analyzed 85,000 stock trades they made through five leading retail brokers. They did get significantly different pricing through different brokers for identical orders to buy or sell at the current market price. > But their best pricing came from a broker that takes payment for order flow, namely TD Ameritrade, now a unit of Charles Schwab. Fidelity, which takes no order payments, got worse prices on the professors’ trades than did TD Ameritrade. And its prices were no better than those from the E*Trade unit of Morgan Stanley, which does take payments. Robinhood, which used revenue from order-flow payments to subsidize the industry’s first commission-free trading, delivered middle-of-the-pack pricing. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4189239

bboygravity 3y ago
That's not really surprising though. First Citadel destroys lit markets by having the majority of US orders routed to them for dark execution using things like Citadel Connect (less regulated and worse than a dark pool, which they also love by the way) and then they scream "look we give you better prices than you can get at the lit markets that we just destroyed (after literally front-running you)". Please love us, we're doing god's work! Sidenote: like Madoff there's a massive conflict of interest where Ken Griffin owns both a (huge) market maker business as well as a hedge fund (that had 64 billion in securities sold, not yet purchased "at fair value" on its balance sheet against some 4 billion in assets). PS: I'm just going to call it. That CEO Zhang doesn't exist and is generated by AI, just to distract from all the massive Citadel crime. Maybe tin foil, maybe not. PS PS: Citadel need to dissapear and Griffin needs to be in jail. He is Madoff 2.0 supercharged.
laratied 3y ago
The people who think retail is being harmed could not have traded 15 years ago. Anyone who thinks things were better for retail back in the day with at least $5+ per side and some guy in the middle in NY or Chicago making a market on a floor is a moron. There is just no other way to put it. Markets in 2023 is an absolute dream for retail.