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For 1 — dude, please back off the “[the rules] are a farce”. Citadel and friends pay to trade with you because they think you’re dumb and they can make money o

For 1 — dude, please back off the “[the rules] are a farce”. Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is. They’d rather trade with you than with the median person on the market. Because they think you’re dumb. You’re welcome to be insulted by that. It’s an insulting thing. But it’s not some grand conspiracy.

shred45 2y ago
Its not the median they are worried about, its the 99th percentile. They _dont_ want to trade with Optiver, 2 Sigma, etc, or some hedge fund thats working a massive trade. Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.
taway789aaa6 2y ago
The "farce" is that when a market maker like Citadel purchase your order flow, the orders are typically not routed to the lit market (e.g. NYSE, IEX, etc) but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security. This breaks the whole idea of a "market" where every buy puts upward pressure on a price and sales put downward pressure. Thus, a "farce". That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced. Gotta love brokers that don't have your best interest in mind. Who needs best execution? /s
- shred45 2y ago
  Order flow in dark pools does impact the price of a security. The market maker will eventually need to trade out of that position. If there is aggregate buying pressure in the dark pool, they will adjust their quotes in both dark and lit markets.
  - taway789aaa6 2y ago
    > The market maker will eventually need to trade out of that position This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements. They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities. So when exactly will that $60 billion of buy pressure hit the market?
    - shred45 2y ago
      I don't think this really tells you anything, and it also will impact the quotes they are making, even if they are holding the position for now.
    - gruez 2y ago
      >This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements. 1. source? 2. supposing this is true, what's their daily turnover? "60+ billion" sounds like a lot, but if that's their daily turnover that shouldn't be anything out of the ordinary.
      - Lionga 2y ago
        1. Just look at their financial statements they , nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker. Not that others won't naked short also, it is just they do not do it openly.
        gruez 2y ago
        >nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker. That's... working as intended? > market makers provide a required amount of liquidity to the security's market, and take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders. In return, the specialist is granted various informational and trade execution advantages. You can argue such a system is inegalitarian or whatever, but if you want a reliable provider of liquidity that won't instantly vanish when there's market turmoil (ie. when you need it the most), there has to be some mechanism to compensate market makers.
- gruez 2y ago
  >but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security. 1. alternate trading systems are obligated to print their trades to the ticker, albeit at a slight delay compared to official exchanges 2. price is dictated by supply and demand, not the trade being publicly announced on exchanges. Trading volumes not being public probably has some non-zero effect on price discovery, but claiming that it has "no effect" is absurd.
- BobbyJo 2y ago
  > That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced. Have any pointers to info on this? I'm looking to buy into some ETFs but I've been unable to find much information on balancing (I'd like to selectively manage my exposure to some stocks that are heavy in indexes at the moment).
  - taway789aaa6 2y ago
    Schwab has a pretty good explainer: https://www.schwabassetmanagement.com/content/understanding-etf-creation-and-redemption-mechanism https://www.schwabassetmanagement.com/content/understanding-... Ultimately the AP (authorized participant) is incentivized to make ETFs available because they get to use supply/demand imbalances as an arbitrage opportunity. > The creation and redemption mechanisms help ETF shares to trade at a price close to the market value of their underlying assets. When ETF shares begin to trade at a price that is higher than the market value of their underlying assets (at a “premium”), APs may find it profitable to create ETF shares by buying the underlying securities and exchanging them for ETF shares, and then sell those shares into the market. Similarly, when ETF shares begin to trade at a price lower than the market value of their underlying assets (at a “discount”), APs may find it profitable to buy ETF shares in the secondary market and redeem them to the ETF in exchange for the underlying securities. These actions by APs, commonly described as “arbitrage opportunities,” help to keep the market-determined price of an ETF’s shares close to the market value of their underlying assets. http://www.understandetfs.org/creation_redemption.html http://www.understandetfs.org/creation_redemption.html My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.
gruez 2y ago
>Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is. More to the point, just because they're smarter than you, doesn't mean you're taking a loss by trading with them. The public markets are shark tanks, and it's better for both sides to avoid it. Market makers can make money off the spread (eg. buying at $3.14 and selling at $3.16 and pocketing the difference) without the risk of getting run over by a hedge fund, and retail traders benefit through tighter spreads, which the market makers can offer because they know the typical retail trader isn't a shark.
- chii 2y ago
  > because they know the typical retail trader isn't a shark. so why don't the sharks use robinhood, which then they can do their shark thing there, but at a better price than before?
  - gruez 2y ago
    1. "sharks" in this case doesn't mean some guy trading out of his house with 6 monitors. They are institutional investors. They can't exactly open a robinhood account, which only serves actual people. Professional traders also value other niceties, like being able to trade on their desktops (rather than having to type in their orders on their phones), which is worth the 1-2 cents per share in potential savings. 2. It doesn't have to be 100% effective. For every day trader that's beating the market and running over market makers with $1M orders, there's a 100 that's losing everything in ill timed trades on meme stocks. As long as there's less sharks than the public markets, they'll come out ahead.
    - GenerWork 2y ago
      >Professional traders also value other niceties, like being able to trade on their desktops In fairness to Robinhood, they did just release a desktop version[0]. [0] https://robinhood.com/us/en/legend/ https://robinhood.com/us/en/legend/

shred45 2y ago

Its not the median they are worried about, its the 99th percentile. They _dont_ want to trade with Optiver, 2 Sigma, etc, or some hedge fund thats working a massive trade. Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.

taway789aaa6 2y ago

The "farce" is that when a market maker like Citadel purchase your order flow, the orders are typically not routed to the lit market (e.g. NYSE, IEX, etc) but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security. This breaks the whole idea of a "market" where every buy puts upward pressure on a price and sales put downward pressure. Thus, a "farce". That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced. Gotta love brokers that don't have your best interest in mind. Who needs best execution? /s

shred45 2y ago
Order flow in dark pools does impact the price of a security. The market maker will eventually need to trade out of that position. If there is aggregate buying pressure in the dark pool, they will adjust their quotes in both dark and lit markets.
- taway789aaa6 2y ago
  > The market maker will eventually need to trade out of that position This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements. They have sold $60+ BILLION of shares to investors and not yet bought the underlying securities. So when exactly will that $60 billion of buy pressure hit the market?
  - shred45 2y ago
    I don't think this really tells you anything, and it also will impact the quotes they are making, even if they are holding the position for now.
  - gruez 2y ago
    >This is why Citadel has $60+ billion dollars of "securities sold not yet purchased" on their financial statements. 1. source? 2. supposing this is true, what's their daily turnover? "60+ billion" sounds like a lot, but if that's their daily turnover that shouldn't be anything out of the ordinary.
    - Lionga 2y ago
      1. Just look at their financial statements they , nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker. Not that others won't naked short also, it is just they do not do it openly.
      - gruez 2y ago
        >nobody is allowed this naked shorting but Cidatel is because they are a market manipu ahhh sorry maker. That's... working as intended? > market makers provide a required amount of liquidity to the security's market, and take the other side of trades when there are short-term buy-and-sell-side imbalances in customer orders. In return, the specialist is granted various informational and trade execution advantages. You can argue such a system is inegalitarian or whatever, but if you want a reliable provider of liquidity that won't instantly vanish when there's market turmoil (ie. when you need it the most), there has to be some mechanism to compensate market makers.
gruez 2y ago
>but instead routed to "alternative trading systems" (ATS) e.g. "dark pools" where your purchase has no effect on the price of the security. 1. alternate trading systems are obligated to print their trades to the ticker, albeit at a slight delay compared to official exchanges 2. price is dictated by supply and demand, not the trade being publicly announced on exchanges. Trading volumes not being public probably has some non-zero effect on price discovery, but claiming that it has "no effect" is absurd.
BobbyJo 2y ago
> That's not even getting started on the "farce" that is an ETF and how they are balanced/re-balanced. Have any pointers to info on this? I'm looking to buy into some ETFs but I've been unable to find much information on balancing (I'd like to selectively manage my exposure to some stocks that are heavy in indexes at the moment).
- taway789aaa6 2y ago
  Schwab has a pretty good explainer: https://www.schwabassetmanagement.com/content/understanding-etf-creation-and-redemption-mechanism https://www.schwabassetmanagement.com/content/understanding-... Ultimately the AP (authorized participant) is incentivized to make ETFs available because they get to use supply/demand imbalances as an arbitrage opportunity. > The creation and redemption mechanisms help ETF shares to trade at a price close to the market value of their underlying assets. When ETF shares begin to trade at a price that is higher than the market value of their underlying assets (at a “premium”), APs may find it profitable to create ETF shares by buying the underlying securities and exchanging them for ETF shares, and then sell those shares into the market. Similarly, when ETF shares begin to trade at a price lower than the market value of their underlying assets (at a “discount”), APs may find it profitable to buy ETF shares in the secondary market and redeem them to the ETF in exchange for the underlying securities. These actions by APs, commonly described as “arbitrage opportunities,” help to keep the market-determined price of an ETF’s shares close to the market value of their underlying assets. http://www.understandetfs.org/creation_redemption.html http://www.understandetfs.org/creation_redemption.html My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.

gruez 2y ago

>Citadel and friends pay to trade with you because they think you’re dumb and they can make money off you. They’re giving you or your broker a better deal because they think they’re smarter than you. That’s all it is. More to the point, just because they're smarter than you, doesn't mean you're taking a loss by trading with them. The public markets are shark tanks, and it's better for both sides to avoid it. Market makers can make money off the spread (eg. buying at $3.14 and selling at $3.16 and pocketing the difference) without the risk of getting run over by a hedge fund, and retail traders benefit through tighter spreads, which the market makers can offer because they know the typical retail trader isn't a shark.

chii 2y ago
> because they know the typical retail trader isn't a shark. so why don't the sharks use robinhood, which then they can do their shark thing there, but at a better price than before?
- gruez 2y ago
  1. "sharks" in this case doesn't mean some guy trading out of his house with 6 monitors. They are institutional investors. They can't exactly open a robinhood account, which only serves actual people. Professional traders also value other niceties, like being able to trade on their desktops (rather than having to type in their orders on their phones), which is worth the 1-2 cents per share in potential savings. 2. It doesn't have to be 100% effective. For every day trader that's beating the market and running over market makers with $1M orders, there's a 100 that's losing everything in ill timed trades on meme stocks. As long as there's less sharks than the public markets, they'll come out ahead.
  - GenerWork 2y ago
    >Professional traders also value other niceties, like being able to trade on their desktops In fairness to Robinhood, they did just release a desktop version[0]. [0] https://robinhood.com/us/en/legend/ https://robinhood.com/us/en/legend/