Just a question about frontrunning. You say that Citadel the hedge fund is the same that Robinhood sells its order flow to. But aren’t Citadel & Citadel Securities ‘just’ sister companies and isn’t there regulation to prevent insider information sharing between them? Also front running would actually be illegal? They’re ‘just’ making money on the spread, right?
Don’t mean to imply anything here - I’m new to this topic and trying to wrap my head around it.
I don't normally have "newsletter reading" music I recommend, but highly endorse reading this piece while listening to the soundtrack of the Game of Thrones season six trial scene
I really enjoyed this read. I am the unsophisticated trader that you're writing about.
Through Robinhood, I have purchased fractional share stocks and accumulate as I can afford it (I usually add about $20 a week building up over time for the more expensive shares I would like to own.
I don't purchase a company's shares because they are doing well today. I purchase based on whether or not I think they have a good future and if I like the way they are generally doing business.
I have never sold stocks because they were going down or up on any given day. I might sell stocks if I disagree with a direction change at a company, or if I feel they are overvalued but that's about it.
I know this is overly simplified trading, but for me, I really enjoy being able to put my money into some companies that I couldn't otherwise. It always felt like such a mountain to climb to just get in the door.
Over the past year, I have made a decent return. I have moved some of my stocks to some that pay a dividend, and I have loved being able to tell my wife that she is now a stockholder of Disney.
I don't borrow money to buy stocks... while I understand the pressure to do so to take advantage of volatility, that just is a risk that makes no sense in my thinking. I am not looking for fast or big money... just a way to put my money someplace that pays better than the bank which seems to cost me more money than I earn.
I thought you might like to hear from someone who hasn't a clue and is making due without it.
Oh yea Packy, I lost my shirt and ass too learning options at the beginning of my "know it all" days...ughh that was a painful lesson. Man learning the hard way hurts like a fastball to the jaw!
It's hard to price in, but regulation, if it happens, would be a moat. Companies kick and scream about not being regulated, but it feels mostly performative. Once it happens they (we) are already set up to deal with it and it just makes it more difficult and costly for a new entrant to start up.
I have limited knowledge about financial markets but willing to look stupid to learn more.
I get the whole collateral issue that brokers were dealing with last week but do you guys have some insight about what drove a decision to turn off just buying vs limit all activity on the stock? My guess it would look more straight up like broker "took your money hostage" if you can't sell when you want?
Was there a more "fair" way to solve this? Involving regulators and maybe the stock exchange itself and doing something along the lines of "we see multiple brokers having liquidity issues because of volatility on this and that, we will stop all trading on these tickers for xx days to give brokers time to up collateral and/or for investors to move their assets to broker with better liquidity". Wouldn't that be more ideal?
Great piece. Do you think that apps like etoro, futu, tiger etc that have a strong element of social community building at the heart of their product are more effective at wrangling entropy? Clearly they also have more guard rails in place to begin with compared to RH.
Great read. As an engineer, I never imagined that entropy can be used to describe financial systems. But I suppose there is some fundamental truth in the 2nd law of thermodynamics, left to their own devices, all systems do veer towards chaos.
Packy, great read! I was excited to hear your thoughts on this whole shebang.
I'm curious to know, how profitable is the fractional share segment of their business? I presume those spreads would be inherently huge but I've yet to really come across any data on that.
Out of the hundreds and hundreds of notes published on this topic, this is the best I've seen by far. Nice work.
Another great piece, Packy!
Just a question about frontrunning. You say that Citadel the hedge fund is the same that Robinhood sells its order flow to. But aren’t Citadel & Citadel Securities ‘just’ sister companies and isn’t there regulation to prevent insider information sharing between them? Also front running would actually be illegal? They’re ‘just’ making money on the spread, right?
Don’t mean to imply anything here - I’m new to this topic and trying to wrap my head around it.
I don't normally have "newsletter reading" music I recommend, but highly endorse reading this piece while listening to the soundtrack of the Game of Thrones season six trial scene
I really enjoyed this read. I am the unsophisticated trader that you're writing about.
Through Robinhood, I have purchased fractional share stocks and accumulate as I can afford it (I usually add about $20 a week building up over time for the more expensive shares I would like to own.
I don't purchase a company's shares because they are doing well today. I purchase based on whether or not I think they have a good future and if I like the way they are generally doing business.
I have never sold stocks because they were going down or up on any given day. I might sell stocks if I disagree with a direction change at a company, or if I feel they are overvalued but that's about it.
I know this is overly simplified trading, but for me, I really enjoy being able to put my money into some companies that I couldn't otherwise. It always felt like such a mountain to climb to just get in the door.
Over the past year, I have made a decent return. I have moved some of my stocks to some that pay a dividend, and I have loved being able to tell my wife that she is now a stockholder of Disney.
I don't borrow money to buy stocks... while I understand the pressure to do so to take advantage of volatility, that just is a risk that makes no sense in my thinking. I am not looking for fast or big money... just a way to put my money someplace that pays better than the bank which seems to cost me more money than I earn.
I thought you might like to hear from someone who hasn't a clue and is making due without it.
Oh yea Packy, I lost my shirt and ass too learning options at the beginning of my "know it all" days...ughh that was a painful lesson. Man learning the hard way hurts like a fastball to the jaw!
It's hard to price in, but regulation, if it happens, would be a moat. Companies kick and scream about not being regulated, but it feels mostly performative. Once it happens they (we) are already set up to deal with it and it just makes it more difficult and costly for a new entrant to start up.
I have limited knowledge about financial markets but willing to look stupid to learn more.
I get the whole collateral issue that brokers were dealing with last week but do you guys have some insight about what drove a decision to turn off just buying vs limit all activity on the stock? My guess it would look more straight up like broker "took your money hostage" if you can't sell when you want?
Was there a more "fair" way to solve this? Involving regulators and maybe the stock exchange itself and doing something along the lines of "we see multiple brokers having liquidity issues because of volatility on this and that, we will stop all trading on these tickers for xx days to give brokers time to up collateral and/or for investors to move their assets to broker with better liquidity". Wouldn't that be more ideal?
Great piece. Do you think that apps like etoro, futu, tiger etc that have a strong element of social community building at the heart of their product are more effective at wrangling entropy? Clearly they also have more guard rails in place to begin with compared to RH.
Great read. As an engineer, I never imagined that entropy can be used to describe financial systems. But I suppose there is some fundamental truth in the 2nd law of thermodynamics, left to their own devices, all systems do veer towards chaos.
Very well researched and written, Packy!
Packy, great read! I was excited to hear your thoughts on this whole shebang.
I'm curious to know, how profitable is the fractional share segment of their business? I presume those spreads would be inherently huge but I've yet to really come across any data on that.