macrocephalopod

That retail order flow is less informed/less autocorrelated/less toxic than institutional order flow, and having a source of order flow which is guaranteed to originate from retail allows market makers to offer a tighter spread while still making a profit?

I mean, you can still imagine ways that investors might not be benefitting from this (e.g. exchange spreads might be tighter if retail order flow made it to the exchange) but you don’t need to juice your argument by speculating about hidden ways that market makers are

So what about when HFTs see the retail stop loss orders, and smack bids as the short (even bids below NBBO) to cause a puke? Is that good or bad?

Is that a thing that really happens or is it a conjecture? Genuine question, I don’t work in HFT so I don’t know.

I have it on excellent authority it does. If this person is wrong, I would be quite surprised.

I mean I’m pretty certain it is illegal. Doesn’t mean it is not done but I would be surprised if Virtu, Citadel, Susquehanna, XTX etc are doing it, would be a big risk for them.

First, there are supposedly order types that the exchanges provide that allow for circumvention of NBBO. Second, the algos are “machine learning”. What mens rea could a machine have? What human would be liable if machines learned to exploit the retail books this way?