
Fast Trader Pulled a Fast One on Some Customers - ptr
https://www.bloomberg.com/view/articles/2017-01-17/fast-trader-pulled-a-fast-one-on-some-customers
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gpderetta
> So when the SIP says that the price of a stock is $40.02, Citadel knows that
> it's really $40.01, so it can buy the stock at $40.01 and sell it to you for
> $40.016 for a guaranteed risk-free profit.

This implies that Citadel is buying the stock before selling it to you. I
doubt that's the case as waiting for the ack from the exchange before handing
the latency would be too high, more likely that Citadel assumes it is likely
that it can buy it for that price at the same time that it is selling it to
you (and that's seems what's implied in the FastFill description). That's not
guaranteed profit as Citadel is taking a risk (albeit small) as its buy at the
better price might not be filled.

edit: and in fact the article later says that this risk-free arbitrage is not
really risk free.

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hawleyal
> This implies that Citadel is buying the stock before selling it to you.

Large firms do this business as usual. They maintain inventory and sell it to
their customers directly, while still reporting the trade to the market audit
trail. This is usually done by the private brokerage side of the firm
executing all trades through the public investment side, and the investment
side just executes the trade against the house inventory instead of a third
party buyer/seller in the market.

~~~
gpderetta
Of course they do, but if they don't get a guaranteed buy on the exchange at
the current best price, they can't guarantee profit.

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heisenbit
This article was about retail customers and exchanges. Sounds like they made
not much money with that.

What the article left out is that everyone learned that this type of race
arbitrage can be done. As a result a number of private microwave networks was
build and this type of trade is done on a much larger scale between the
exchanges now prompting institutional investors to question the fairness of
the deal they are given.

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kevin_b_er
Nifty. The microsecond gamers even salami slice run of the mill orders to skim
profit from you.

~~~
hedmundson
I think you missed part of the article. Citadel's actions lead to lower prices
for retail. Their actions are saving you money

"But the weirdest part is that Citadel is selling you the stock for a lower
price than what's available on the public exchanges. For instance, if the
public exchange shows the stock offered at $40.02, Citadel will sell you that
same stock for $40.016, saving you like 40 cents on a 100-share order. (This
is called "price improvement.") It's giving you a (slightly) better deal than
you'd get elsewhere!"

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method_capital
allowing sub-penny executions by some effectively steals trades from risk
takers on primary exchanges; it's horrible for market structure and depth. the
sub-penny problem is a function of another insidious practice, payment for
order flow. both should be banned.

~~~
Chris2048
A dead comment by "lintiness" also happened to use the phrase "of another
insidious practice" \- coincidence?

~~~
avn2109
Nonetheless I find the comment in both its incarnations civil, insightful and
substantive (though contrarian), and I don't think it ought to be dead.

~~~
Chris2048
I disagree that the post is 'substantive'. Opinions are shared, possibly
reasonable one, but there is no further substance to them. I also consider
words like 'steal' to be loaded in that context.

The problem is, this raises the question of sock-puppets being used; even if
they don't appear to be employed as expected.

