You're the best kind of correct, which is technically correct. But what I said is that "multiplied by every retirement account we're talking real money". Which is no-qualifiers correct.
That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up.
I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two.
There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
> That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way
I really hope it isn’t, or it would be making lots of tax events! I hope it’s doing in-kind transactions like all the normal ETFs.
> Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
No, robinhood average order is just smaller so less risk of adverse selection.
I didn't think that a digression about the tax optimization opportunities of in-kind securities swaps would be enlightening to a general audience.
As for your second point, I guess neither of us works at Citadel so we're both guessing, but if you agree that there is a market for order flow and that the most charitable interpretation of why that would be the case is because of the attached optionality for internal netting, then you're sort of making the assertion that all PFOF is equally valuable, which would be a hell of a coincidence.
As a sort of side note, I regard the cherry-pick the parent with ">" prefixes and go after snippets of what they posted as basically the lowest form of discourse on HN in spite of how popular it is, and I would encourage anyone to try to reply to someone's entire comment rather than just trying to find the weld points and lean on those spots. It's pretty weak.
> But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.
I am not sure I understand. That would mean that the number of advanced actors would stay stable or go down over time (generally much research shows that markets tend to concentrate even in pure random trading, so the number of advanced actors should go down). Is that actually the case?
As I've mentioned elsewhere in the thread, it's notoriously difficult to get citations on this stuff so take with a grain of salt, but I've heard that in 2019 the "HFT" industry (defined some way) had cumulative annual profits in the US of somewhere between 2-4 billion dollars. That's a long holiday weekend for Google or FB. I've also heard that this (inflation-adjusted etc. etc.) this is down sharply from ten years before, when spreads were wide and undocumented order types were winked at.
To wildly oversimplify, market makers will tend to drive the spread down to the tick size, and arbitrageurs will tend to put themselves out of a job.
For the industry as a whole to be growing either in distinct actors or cumulative top-line, the number of markets and instruments and general financial activity has to be growing faster than the big dogs are eating each other. This is my (semi-informed) guess.
> HFT industry annual profits 2-4 billion. That's a long holiday weekend for Google or FB
Nitpick: that’s 10 to 37 days for Google or FB. 2B for Google is ~10 days, 4B for Meta is 37 days. Alphabet net income for 2021 was $76.033B, Meta Net income $39.370B.
Haha fair play, but to nitpick in return: when I worked on FB Ads, revenue was not even remotely uniformly distributed across days of the year, and Thanksgiving? Lots of family photos going up and being looked at relative to your typical Thursday.
Morbidly funny anecdote: when I first moved to the NYC office I obviously didn't have many friends, let alone a significant other. Myself and a few of the other sad saps who failed to notice the office clearing out a bit early around us were borderline freaking out over what looked like very anomalous behavior in the IG ranking system.
It wasn't until we raised it in a slack group that included some coupled folks that we realized it was Valentines day. Womp Womp. ;)
Is Citadel paying 2X for PFOF on Robinhood vs Schwab because it is dumb retail flow or due to increased optionality because it is inherently built in slow transmission flow to reach the execution platform?
That ETF that you should have your roll in? It's buying and selling securities all the time, and encountering friction along the way. And whether people have ETFs or individual equities in their (hopefully tax-advantaged) retirement account, across everyone with a retirement account it adds up.
I know that people often have a low-key axe to grind about advanced market actors being "bad", and I know that politicians go to the well with this narrative all the time, but it's misleading at best and usually just demonstrably wrong. And with nothing but respect, I tend to bow out of conversations where people push the issue past a comment or two.
There are exceptions: Citadel paying 2x for PFOF on Robinhood vs. Schwab to get optionality on internalizing against dumb flow? Yeah, that's pretty iffy. But in general advanced actors are slicing strips of meat off of each other to the benefit of 401ks everywhere.