[ValarMorghulis]

Well the hedge funds have achieved their goal partly by directly interfering in the app. Keep in mind that Robinhood App is backed by Citadel Securities.

And the vicious hedge fund which went belly up in this saga, Melvin Capital Management, was bailed out by Citadel (NOT the same as Citadel Securities but founded by the same guy Ken Griffin).

Reports are trickling in that Robinhood might allow retail investors to buy limited stock from Friday (in US), but this is a blatant abuse of wealth and power by the Wall Street.

[anandhsub]

Many don't seem to understand what goes behind the scenes when you buy a stock. There is a reason it doesn't get credited to your account in real time but it takes 2 days for it to show up. There is a long process that goes on the clearer's end and they have huge exposure in terms of how much money is locked until the trades are settled. A reminder that the clearer CANNOT use the customers money for these 2 days. It is obvious they aren't able to process the massive amount of buy orders which are multiples of the total stock outstanding and needed a bit of breather to make sure they can arrange the money to settle them.

Not a big fan of the SEC or rather any US regulator but I for one wouldn't really blame the brokerages here. May be they should have been more transparent with the reason for blocking buy orders.

[Samurai]

Originally Posted by ValarMorghulis

but this is a blatant abuse of wealth and power by the Wall Street.

Noooooo.... they would do that?

Seriously, stock markets are nothing but casinos. And what do they say about casinos? House always wins! That is because the rules are in favour of the house. If you find a loophole (say card counting), they will shut you down. Try using math in casino, the goons will be after you. It happened to Ed Thorp himself.

In case of stock markets, institutional investors are the rule makers, as in they can influence what rules are made. It is never designed to favour the retail investors.

[JithinR]

Originally Posted by anandhsub

Not a big fan of the SEC or rather any US regulator but I for one wouldn't really blame the brokerages here. May be they should have been more transparent with the reason for blocking buy orders.

Don't know anything about investing in the stock market. Had a question though. Does the same process not occur when people sell. Robinhood only suspended buys right?

Besides, how do others like Fidelity continue to allow their users to buy/sell the same stock?

[SmartCat]

Originally Posted by download2live

Sometimes I feel what a colossal waste of talent is it in the Hedge funds. I mean there is money but there is so much more those clever maths graduates can do. That is why I like Elon Musk so much. That guy made things. Anyway time to come out of the "3 Idiots" mode.
Money talks.

Clever math guys at hedge funds might not "create" stuff, but are usually the first to adopt latest technologies (to find an edge, to make money for themselves) like AI/ML or blockchain or big data and what not. The initial adoption and use case in finance helps new technologies evolve, and it trickles down into other sectors eventually. So these Ph.Ds contribute indirectly to the real world.

[anandhsub]

Originally Posted by JithinR

Don't know anything about investing in the stock market. Had a question though. Does the same process not occur when people sell. Robinhood only suspended buys right?

Besides, how do others like Fidelity continue to allow their users to buy/sell the same stock?

Robinhood basically stopped traders from adding to their positions since that's what increases their exposure. That got reported as banning buy orders because I guess everyone using Robinhood was long.

The reason Robinhood is free is because they clear through a very small firm(I think Peak7) which couldn't afford to increase exposure significantly, especially given all their clients are on the same side.

Fidelity is quite large and they handle massive settlements each day and this would have been fairly small in terms of what additional exposure this would have caused. Infact I am guessing the hedge funds would have shorted via these large firms in which case they would have actually been benefitted by accepting the buy orders.

I am not a fan of Robinhood given the link with Citadel and how they likely make money by selling this order flow to market makers who front run the Retail but in this case I think what they did was right.

[download2live]

Originally Posted by anandhsub

Robinhood basically stopped traders from adding to their positions since that's what increases their exposure. That got reported as banning buy orders because I guess everyone using Robinhood was long.

And what it led to was (Source: WSB, I could not explain it better):

"At 10am the stock had already started dropping. $400 --> $120 in about 10 mins. and literally no one could do anything to stop it as we were all locked out of our brokerage accounts. During that dip the hedge fund managers drove the price as low as they could then bought the shares we weren't allowed to buy in an attempt to mitigate/minimize their losses by covering some of their naked shorts.

In total i think they lost about $3B today, but it should have been closer to $23B."

The system has been exposed yet again. But I think what WSB has done/doing is better than holding placards and occupying Wall St.

From goverment point of view, penalties are not working. If they can afford to pay the fine then it is not a fine. And there is always option of declaring bankruptcy an walking away from the mess one has created. Proper jail time is the only deterrant.

I wonder what went wrong for Enron that authorities made an example out of them by jailing the people in charge.

Also and important point: Diversify the allocation of capital.

[anandhsub]

Originally Posted by download2live

And what it led to was (Source: WSB, I could not explain it better):

OT (What happened to the smiley?!?) For a person who has been part of the US capital markets for over a decade now ( mostly debt though) I am ashamed to say I hadn't heard of wall street bets until a few weeks back. Have been more of a twitter guy when it comes to discussing markets.

I am in serious awe of what these guys have done.

[am1m]

Am very ignorant when it comes to stocks, and things like hedge funds I really don't get at all. But (and forgive me if this is a very simplistic and naive query) from what I've read online so far about this business, isn't 'short selling' kinda...wrong? The whole (presumably) idea behind a share market is to raise capital to finance businesses for them to grow and in turn reward those who invested. But betting on a stock to tank seems counterintuitive and something that shouldn't have been allowed in the first place? (Again, I realize I might be missing the point completely, so am happy to be corrected and in the process learn more.) And when I read that hedge funds are allowed more liberties when it comes to these things, I really have even less sympathy for such entities. While I don't believe this is really a small investor vs giant thing; the people driving this are also pretty well-off and investment savvy and I assume the really naive individual investors will be left with the losses after all this is over; I'd still say good for these guys, hope they hammer the hedge funds some more, and more often!

[ValarMorghulis]

Originally Posted by am1m

...isn't 'short selling' kinda...wrong? ...

Well, I have no sympathies for hedge funds but let me try to explain the technical side.

When you invest in a blue chip fund, you are banking on the growth of the company believing the company is doing/ going to do well. So you are going long.
OTOH, when you short a stock, you are basically saying that there is a fundamental problem with the company and the stock is overvalued. So technically you aren't banking on the company going bust, you know the company is on unsound fundamentals and you've only found that earlier than others. So short is like your fist mover advantage.

Perhaps, SmartCat can elaborate this rudimentary example to a better one.

[androdev]

Originally Posted by am1m

... betting on a stock to tank seems counterintuitive and something that shouldn't have been allowed in the first place?..

There won't be liquidity without it, among other things. In general, there is lot of gambling and betting going on in a stock market. The best a regular joe can do is to diversify and hope for the best.

[download2live]

Brace yourself guys for round 2.
The market will open in sometime and already the Pre-market price is around 380.

Waiting to know what the biggies next move will be.
Will Robinhood again cancel the buy orders to "protect" the retail investors? Or will it "crash" just at right time citing server loads?

And how long the unity on holding the stock will last on WSB? The motto seems to be somewhere between "Ape together strong" and "We can remain retarded for longer than they can stay solvent". An interesting group is 1 share gang.

Entertaining as it is, at the end of this there will quite a few with major losses.

The game has been stacked against the retail investors.
For example in case of Snowflake IPO, Buffet's company got to buy shares before the IPO at 105 USD. The debut price of Snowflake at IPO was 245 USD.

I feel there is something to the age old saying in my family, stay away from stock market.

[ashokrajagopal]

Originally Posted by am1m

from what I've read online so far about this business, isn't 'short selling' kinda...wrong? The whole (presumably) idea behind a share market is to raise capital to finance businesses for them to grow and in turn reward those who invested. But betting on a stock to tank seems counterintuitive and something that shouldn't have been allowed in the first place?

Shorting is generally accepted as a legitimate means to call BS on corporate bluffs.
Promoters usually talk up their stocks and shorting is a good way for legitimate analysts to bring out the fugazi talk.
Of course, its used for all kinds of manipulation.



I tried to summarize this story, but there are some blanks.

Would appreciate if some one can fill in the blanks.
Of course expecting a comprehensive story from @smartcat once the dust settles.

GME was shorted by Melvin and others.
|
WSB user DFV and friends spotted the calls were 140% of the float
|
WSB moved as a group, started buying up and bidding the price up
-- this is where Short squeeze started
|
Buying options is cheaper than buying stocks, and Robinhood lets that happen for free
So WSB dudes start buying options
-- this is where the Gamma squeeze started

Of course Melvin obviously went down.
Citadel swooped in and took over.


Its been known for a while that Robinhood does sell the flow information to institutional high frequency traders.
( for the uninitiated, flow info is basically the finance variant of data -- basically your buy/sell orders being sold quite murkily microseconds before your order is fulfilled.
If somebody acts on this data before your order executes, I believe it is called frontrunning in finance lingo
)


Given that Citadel is behind Robinhood, isnt it a bit too obvious that they are involved big time ?
I mean they had the flow information, there is very good chance front running happened, and they stopped trading on Robinhood when it suited them.


Looking at this from a distance, did WSB really gain anything except for the few guys who got in, in the very beginning ?

[poloman]

Originally Posted by Samurai

Noooooo.... they would do that?

Seriously, stock markets are nothing but casinos. And what do they say about casinos? House always wins!

Bold point of view..!! I never understood how trading is different from gambling.
Things like option trading has become a craze among the Indian middle class and youngsters. Well educated professionals are spending considerable amount of their time chasing wild money. This include IT guys whom I know spend the entire day in market related activities. Some are flush with money and do this for kicks others chasing the super rich dream the easy way.

Scamsters like Harshad Mehta have become heroes. People like PV Sundar, Manu Bhatia etc are their role models. They are willing to attend courses worth lakhs to know the great trading game from these so called Gurus. These people have elaborate facebook and other social media groups where they spend long hours parleying and making strategies.

As usual 95% will end up losing significant amount of their money. The rest continue to attract and drag many in to this wormhole driven by greed and lure of easy money. Some of these crooks show off their PL statements and lifestyles to induce envy and fear of missing good times in gullible public.

As we speak Gamestop premarket is up 82%. Great battle of wits going on..

[SmartCat]

Originally Posted by am1m

Am very ignorant when it comes to stocks, and things like hedge funds I really don't get at all. But (and forgive me if this is a very simplistic and naive query) from what I've read online so far about this business, isn't 'short selling' kinda...wrong?

1) Just because a stock has shorts, it will not go down. A stock will fall only if a large number of shareholders sell at whatever price is offered, at around the same time. For eg: most small and midcap stocks will not have short sellers, but that does not stop a financially weak company stock from crashing 90%.

2) Most of the time, short sellers LOSE money. Tesla shorters losing billions was making headlines till recently
https://edition.cnn.com/2021/01/06/i...win/index.html
That's because stocks generally tend to go up in a bull market, despite weak financial performance of a company.

3) Speculative activity (including short selling) in general improves liquidity and reduces cost of investing. Without speculators, you won't be able to instantly buy and sell with a click of a button. You will have to call up your broker and arrange for a buyer/seller to execute the transaction.

4) Let's say you are invested in RELIANCE. If it does not go up or down and stays in a range for a long time, you get nothing on your investment because Reliance does not pay much dividends. Instead, you can lend your shares to short sellers or arbitrage mutual funds, and they will pay you a tidy sum as interest for borrowing your shares.
https://www.hdfcsec.com/productpage/...-and-borrowing