Trading with a highly sophisticated counterparty can be very costly and undo the small profit they have made from thousands of other trades.
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.
so why don't the sharks use robinhood, which then they can do their shark thing there, but at a better price than before?
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.
In fairness to Robinhood, they did just release a desktop version[0].
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
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.
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?
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.
Not that others won't naked short also, it is just they do not do it openly.
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.
its a scam and is a reason how Citadel makes $30,000,000,000 profit per year
Where are you getting "$30,000,000,000" (billion) in profit? Wikipedia says they only made $6.3 billion in revenue in 2023. Moreover, they were in existence for 22 years. Even if they only started "counterfeiting shares" in 2021, $30B in profit per year (so $90B in the past 3 years) seems absurd for only $60B worth of "counterfeiting shares" on their balance sheets.
Citadel gross trading profit totalled $28bn last year,
60B is a balance at a specific date 12/31/2022, they trim the balance by the EOY and harvest losses.
the average balance is much bigger and fluctuates heavily given market demand.
UPD: I stand corrected, the market making arm only made meager $5,000,000,000 for the 6 months, so more like 10,000,000,000/year, not 28
https://www.nasdaq.com/articles/citadel-and-jane-street-set-...
https://en.wikipedia.org/wiki/Citadel_Securities
The market maker boogeyman is Citadel Securities, not Citadel LLC.
But even then, all trades are either eventually settled at some time t, or fail to settle, e.g. if the seller is not good for the shares. Any of these 2 events happening is reported outside of a single broker-dealer, i.e. public info. And to settle a trade, you will need the actual shares, that you've either bought or borrowed.
All this info, settlements, failures, stock buys & loans is visible to other parties in the market.
If your point is that the Citadel is breaking the law, and not reporting what they should, when they should, then that's a problem. But there would be so many other parties discovering it way before their annual financials are published.
https://www.sec.gov/newsroom/press-releases/2023-192 https://www.sec.gov/newsroom/press-releases/2017-11
> But there would be so many other parties discovering it way before their annual financials are published.
Looking at Bernie Madoff I'm not sure this is really the case...
also heavy usage of synthetic shares and derivatives to hide naked shorts
That’s not true, because, amongst other reasons, everything you’ve listed (synthetic shares/derivatives/kicking the can down the road) can be seen by others in the market.
(Naked) Short all you want, there’s nothing wrong morally with betting in that direction. But it will be picked up.
> So when exactly will that $60 billion of buy pressure hit the market?
Citadel needs to deliver the stock they sold on T+1 as of May 28, 2024. There's some allowance for failure to deliver, but the data is out there, if Citadel is routinely failing to deliver, you should be complaining about that, not about their financial statements.
Meanwhile, if Citadel wants to pay me fractional pennies more per share than a public exchange, and also my brokerage fractional pennies for the privilege, who am I to say no? Especially when the public exchange may charge me a fee to trade.
they use derivatives and heavily recycle buy/sell shares to keep kicking the FTD can down the road for as long as the market returns to their desired position.
Let's say I buy a share of F on Monday, my brokerage routes it to Citadel, because PFOF.
On Tuesday, I expect to get a share of F delivered at close of business, because T + 1.
If Citadel doesn't deliver on Tuesday, what happens?
Are you suggesting they would continue to not deliver the share I purchased for several days, by saying oh yeah, we'll get toast0 his shares tomorrow? That would be pretty upsetting, and I imagine I'd call my brokerage and ask them why they're dealing with Citadel if they never deliver shares on time.
plus even if there is only a single share authorized for stock exchange, there will be more than one in the float, due to synthetic shares: created when shares are borrowed and then reshorted, created to support derivative market (selling calls and buying puts). ALso borrow/rehypothecation mechanics is recursive, since shares are fungible, I can recursively re-borrow and re-short the same share, creating synthetic shares out of thin air, supported by nothing other than some bytes in the database somewhere, and not physical shares
>So when exactly will that $60 billion of buy pressure hit the market?
it probably did shortly after the statement, coupled with a likely similarly sized "sell pressure". They're constantly buying and selling things that's how the business model works
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).
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
My understanding is that volatility is good for ETF APs because there are more arbitrage opportunities.
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.