your take on this smells bad.
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do you have an actual reason or is it just because you read something about how payment for order flow is necessarily evil?
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your tweets so far don't comport with what I know of the story. I don't care about order flow. I care that retail investors are being illegally shut out of trading by a platform that is owned by a hedge fund who is losing billions to same retail investors. Let's start w that.
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you did reply to a tweet about order flow, but okay. the platform is not owned by a hedge fund! RH sells order flow to Citadel Securities (not the hedge fund). now, even assuming Citadel & Citadel Securities are colluding, there's no information advantage in the order flow.
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I think it's a stretch to assume that Citadel Securities for trade execution has no information sharing with Citadel the hedge fund. In fact, I think it is very reasonable to assume that they use it for signals in their own trading operations. Other srcs indicate front-running.
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For example, normally you pay for prime brokerage services, not derive your revenue from it.
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these are the two best articles i've read on how retail brokerages make money and they cover pretty well how pay to order flow is usually a positive for retail investors kalzumeus.com/2019/6/26/how- bloomberg.com/opinion/articl
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I think there is more at work than just order flow. From 's linked article: "Payment for order flow is a minor footnote to the story of discount brokerages... Schwab earned 1.4% of revenue from payment for order flow, TD Ameritrade about 8.4%, and E*TRADE about 6.1%."
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I'd bet that we'll soon learn whether and to what extent Citadel and Citadel Securities have a wall between them (en.wikipedia.org/wiki/Chinese_w) which will shed some light on whether they were just acting as a market maker or not.
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i agree that they don't always act properly (and have historically been fined not very much at all for breaching the compliance firewall), but i Matt Levine's conclusion seems reasonable to me: why would they need to front-run when this is publicly available information?
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Why would they pay for it if it's not valuable?
they ostensibly pay for it because they trivially make money from retail trades in ways they don't from institutional trades, see both of these links (i think this is mainly covered in the Levine one)
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Replying to @dinodaizovi @pkosmas and @cullenroche
these are the two best articles i've read on how retail brokerages make money and they cover pretty well how pay to order flow is usually a positive for retail investors kalzumeus.com/2019/6/26/how- bloomberg.com/opinion/articl
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tl;dr being that you make money from spreads which works for retail trades which are small and random but not from institutional trades which are large (and therefore move the price too much to make money this way) and have an information edge (and so are probably coordinated)
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