381–390 of 445 posts
Earlier quoted context omitted.
Theranos collapsed without any shorting involved. Isn't this a counterpoint to the argument that shorting is required for "price discovery" and the unmasking of fraud?
It took 10 years. Might have been faster and wasted less capital if had been publicly traded and therefore possible to short it.
Earlier quoted context omitted.
> who took the view that all short positions were ursary It's more than usury. There is usury involved because "lending" the stock is done with interest. However, the problems don't stop there. Stock shorters, as you point out, actively bet against a company or industry or economic structure in general, it's their benefit to see a company collapse or not do well. This isn't how a stable society should be set up. Furt…
> This isn't how a stable society should be set up and why not? antifragile systems gain stability as they endure shocks. why not cyclically generate then destroy business? makes it easier to funnel resources to the top, because only the biggest - i.e., the most moneyed, hence the most liquid, hence best reactive to risk, hence most stable - firms can survive. you may not like it morally, but two centuries of corpora…
The 2008 crash was just one manifestation of what happens when the system is taken to its logical conclusion, it all comes crumbling down eventually because it is not sustainable. We saw it these past two weeks with GME, however, the big players stepped in to put a stop to it because they can't allow the market to play by their own rules (because they're unstable).
I have no issues with businesses going under because they can't compete, that's how a free market operates. I have issues with lending money with interest and other predatory practices, such as shorting, because they destroy economies and/or exploit one class, causing the lender to gain an unfair and immoral advantage simply because he has money.
Gain wealth, but do it morally and without exploiting others. I'm all for that.
Earlier quoted context omitted.
If we are at this maybe we should abolish high frequency trading as well along with the PFOF? The whole scheme looks like some malware program.
It looks like that because it's complex and technical and people don't understand it, but it also saved retail investors a bunch of money. I don't understand how a jet engine works, but I don't feel any urge to advocate for jet engine policy changes.
There are actually a variety of HFT strategies, but there's good evidence that the high-speed market-making variety are good for small volume investors. Those in favor of getting rid of HFT should be specific about exactly which sorts of HFT they want to ban.
The narrowing of mean bid-offer spreads isn't surprising, since many HFT strategies are essentially faster versions of traditional market making. They're able to offer narrower spreads (better prices) than traditional market makers because they're faster at widening spreads (worsening prices) when the market starts to move in one direction. On average, this means better prices for people trading small amounts of stock. However, for large institutions that trade market-moving volumes, low-latency market making means worse prices, since the market makers are faster at noticing and widening spreads when there are large market-moving trades afoot.
Also, the ETF arbitrage variety of HFT strategies reduce the amount that ETF prices differ from the prices of the individual stocks within them. This results in fairer prices for people who primarily invest in ETFs.
On the other hand, low-latency market-making results in less liquidity being offered when the markets are moving quickly in one direction, which is when it's most important to have liquidity.
Also, for the average person, a very large portion of their exposure to the stock markets is through pension funds and mutual funds, which tend to make the sorts of large-volume market-moving trades that are hurt by HFT's ability to notice and quickly get out of the way to avoid being run over.
Disclosure: I've never worked for an HFT fund, but I do work in the financial services sector. I did some work on systems designed to reduce market impact of large institutional trades, part of which is breaking up patterns so that HFTs are worse at noticing and widening their spreads.
So this is like Facebook releasing a statement saying "It's time we were all nicer to each other" right? That genocide we were helping? You guys should figure that out. Hey guys, you know how you run a successful business clearing trades, and we just had to dilute our share in our company 50% because we fucked up our collateral calcuations? Well, we've got an idea. You redesign your entire business so that we don't n…
Where are you reading that they messed up their collateral calculations?
Earlier quoted context omitted.
It looks like that because it's complex and technical and people don't understand it, but it also saved retail investors a bunch of money. I don't understand how a jet engine works, but I don't feel any urge to advocate for jet engine policy changes.
For those who don't understand your comment about HFT saving money for retail investors, several well-regarded published studies suggest that the narrowing of mean bid-offer spreads since the introduction of HFT can be attributed to HFT. There are actually a variety of HFT strategies, but there's good evidence that the high-speed market-making variety are good for small volume investors. Those in favor of getting rid…
Earlier quoted context omitted.
They ended up in a situation where they had to prevent trading, draw down their entire credit lines and then do another funding round to shore up $3.4Bn - it's pretty clear they fucked up their collateral.
Do you consider them having their collateral requirements changed on them at 3am to be them messing up? If your bank tells you your mortgage payment is going to be 10x this month, and you have to scramble to cover that, did you mess up your personal finances?
Even still: Yes-- good budgeting with savings should allow you to face an obstacle like a 10x mortgage payment. I'm not particularly frugal but I could, at a pinch, gather that much money. Assuming you're putting aside the recommended 6 months living expenses for an emergency, the non-mortgage part of that savings should cover the other 4 months.
RH is in a business that requires the deepest pockets of literally any industry on the planet. If they don't have that capital, they don't get to play, and that's their fault.
Earlier quoted context omitted.
> Whereas these crashes can and do occur today, the non-realtime aspect of settlement and clearing mitigates to a large extent. See the 2010 flash crash example: https://en.wikipedia.org/wiki/2010_flash_crash How so? I'd argue that the SEC policy of breaking "clearly erroneous" trades before settlement exacerbates that kind of flash crash: market-makers can't step in to prop up prices and then hedge their exposure, b…
According to Robinhood, they didn’t want to put limits on anything, it was the cleaning house that made them, so there had to be something that triggered AMD restrictions?
Turns out the whitepaper specifically addressed this problem and by waiting 6 blocks, Bitcoin was designed to have such low probability of a chain reorganization that I was safely settled (finality in 60mins).
That's how I built it, and it's also the way that 99% of centralized exchanges operate today.
Earlier quoted context omitted.
> new entrant joins industry, ruins pricing by giving product away for free, nearly goes under because it over extended itself, and then blames the rules Credit where it's due: ripping off the commission band-aid was overdue, and Robinhood single handedly caused it. And abridging T+2 is probably a good idea. (Though real-time settlement and clearing is probably not.) What's missing in their communications is the mea…
Getting rid of commission was actually probably a bad idea. It creates an expectation that a very complicated service should be free, and puts a lot of pressure on now free brokerages to find a new revenue source. There's a reason why RH is accused of helping Citadel front run their own customers. This seems to me a lot like when VC backed startups artificially suppress prices below break even to push out competitors…
Are there serious accusations of front-running (a serious financial crime) and collusion to facilitate that crime? Or are you referring to people with a poor understanding of the interactions here making complaints that really boil down to privacy concerns, not actual front-running?
I haven't seen anyone post any evidence of actual front-running.
For why Citadel would pay for retail flow, if they're not committing financial crimes, market making is essentially profiting from separating pricing signal ("alpha") from pricing noise. If the prices are jumping around randomly, you make money by holding prices steady against that noise. If the prices are moving in one direction because new information ("alpha") has become available, you lose money if you try and hold prices steady against those moves. Empirically, in aggregate, retail flow has a lower signal-to-noise ratio (lower alpha) than the market as a whole, so market making on just that flow is more profitable, even though Reg NMS[0] requires Citadel to give RH customers' round-lot orders prices at least one cent per share better than available in the open market (price improvement over NBBO, combined with no sub-penny pricing).
By paying to exclusively trade against a low-alpha channel and damp out some of that noise before it affects the market as a whole, Citadel makes more money, at the expense of other market makers who would normally have exposure to that noise.
Also, there's a bias in execution called adverse selection: bad trades tend to get filled faster than good trades. For their non-market-making strategies, crossing against low-alpha flow has less adverse selection than trading those strategies on the public markets. Here too, RH customers trading round lots get prices at least 1 cent better per share than NBBO, unless the orders are passed through and placed on a regular public venue.
Disclosure: I work in financial services, but have never worked for Citadel.