Step 0: Citadel pays Robinhood for order flow. Citadel gets to see RH's orders a few milliseconds before they're filled. Citadel may choose to front-run some of those trades.
Step 1: RH's customers and WallStreetBets start manipulating $GME. This is happening in the open.
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...to cover their borrowed shares. If most shares are held by retail investors who won't sell, the price will skyrocket (supply/demand) until someone does. The bear hedge funds and such will still have to buy to cover, which may cause a bit of a liquidity crisis for the funds.
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The concept of "Screw the hedge fund vampires who exist only to destroy companies like Gamestop" is a big part of /r/WallStreetBets's messaging. It's a compelling message, and a decent secondary reason for this.
The primary reason to manipulate markets remains profit, though.
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Step 2: HFTs buy shares ahead of Robinhood users.
Remember Citadel, the firm who can front-run robinhood trades, and got to see all of that RH data a little early because they paid for flow? Yeah. When do you think they started buying $GME in front of RH traders on momentum?
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Because the volume of shares exchanged suggests that the HFT folks were all over this, all the way to $150. The message on WSB might be "lots of little guys screwing big Wall Street", but the truth is that the HFT robots were screwing everyone, while paying RobinHood a kickback.
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Step 3: A hedge fund becomes insolvent. Today it was Melvin Capital Management. It very likely won't be the last.
Melvin immediately sells off a portion of itself, because it needs the influx of cash or it will vanish in a poof of smoke, vaporizing ~$15 Billion in the process.
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Step 4: Who's the lead investor, picking up part of a usually successful fund at fire-sale prices?
Right. Citadel, probably with some of the cash they made by repeatedly profiting in the milliseconds before filling the trades that collapsed this fund.
![Citadel, Point72 to Invest $2.75 Billion Into Melvin Capital Management](data:image/svg+xml,<svg xmlns="http://www.w3.org/2000/svg" width="680" height="340"><rect fill-opacity="0"/></svg>)
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Step 5: Citadel still has access to RH order flows, is still allowed to front-run them and/or pocket the spread, and can use that and other information to determine the next over-leveraged fund that's going to get squeezed.
They might even be able to accelerate the squeeze.
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So, the next time you discount the impact of "4chan with a bloomberg terminal", remember that they are not the only ones who stand to benefit from intentionally screwing exposed short-sellers.
The professionals are all too happy to amplify the efforts of the amateurs for profit.
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Because if amateurs manipulate the market, uh, truthfully, then nobody loses their license.
"I (retail investor) bought because I hate Citron & hedge funds, and we're going to screw them for profit. Join us, but do your own due diligence. YOLO!" might just be legal. IANAL.
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If a licensed broker/dealer did this, they'd lose their license, and probably go to jail. Martha Stewart did time for less.
But Citadel, by paying for order flow and sitting in the middle, gets to legally ride-along, printing money the whole way.
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So, when you ask yourself, "who pays for no-commission trades, and why?" or "what's the harm of RobinHood's business model?", take a look at what happens behind the scenes, in the milliseconds after you press buy, but before you own those shares.
It's vampires all the way down.
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This is the high frequency trading biz model. Citadel et al has HFT ops & can see all bids/asks on any exchange. They make small fractions of a penny on every trade. So if you buy stock for $30.44 it doesn’t affect your price unless you’re working with millions on single trade...
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None of the pieces of it are new (RobinHood routing most of its orders to Citadel b/c of rebates is unusual -- most brokers route to the ECN or market maker who can deliver the best price, not the best profit for the broker)
This particular chain of events is a novel, if not new
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Brokers don't own stocks, they're the middlemen and they hold securities in trust for their customers. Borrowing shares to sell them short is nothing at all new or novel -- it's a way to profit on downward movement.
Do your homework, Mr. FirstnameLettersNumbers who just joined.
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返信先: さん
going on reddit and making a DD post I don't really think counts as "manipulation"... you have to understand the bubble environment we are in and a simple DD post catches fire and all hell breaks lose -- also the RH model of zero fees goes to Citadel giving shitt(ier) fills
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I don't look it as pervasive/broken as you do as least the customers are more for it than the flash boys era. Also, leaving the Citadel stake in Melvin out they have a cash cow of hitting other exchanges for pennies and having ZERO risk, they don't want a position cc
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返信先: さん
Takeaway is that Ken Griffin is going to make billions and billions over the next year+
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Fingers crossed. I’m full on 
right now
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返信先: さん
If they’re “front running” the reddits, retailers, are they not also creating instability to their detriment? Ie they would be buying stock which could theoretically hit short stops and further push up their losses.
I guess if they hold all the way through, no diff in end.
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Wall Street always comes out ahead, even if it has to sacrifice a few of their children.
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He’s right about citadel...RH is still a good platform for most people though even if their data is being exploited
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返信先: さん
One very important correction here - Citadel gets access to the order flow and gets first priority to trade the other side of it, they can make tons of money that way. But they do not get to front-run the trades as that's illegal, even for Citadel.
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Citadel is a dark pool. They can't "frontrun" the way a traditional broker can't, but they can effectively do it by filling an order at not-the-best-price. The net effect is the same.
Citadel also does place trades on its own behalf...
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Do you have evidence that sold overflow gets frontrun? Don’t think that happens and it would be a huge regulatory issue
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Citadel is a dark pool, and unless they're required to disclose, they won't. They're almost certainly filling orders with a larger spread than other MMs/ECNs, which is legal, and they're trading for themselves on data they buy from RH, which is also legal.
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返信先: さん
Great thread and spot on. Maybe someone finally looks into Citadel and the HFT market model. Another point to add, Exchanges give preferential access to Citadel and others like them to locate their servers close the exchange (speed edge)
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To be clear here, citadel pays handsomely for this access. It’s not just given to them. And yes, that’s still a big problem.
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isn't "some of those trades" an euphemism, though? don't they, in reality, gobble up all the trades and route them into a dark pool so they never hit the tape?
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may choose to front run all short trades = you are manipulating the markets higher because only longs hit
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