EU Set To Ban Trading Practice Helping Power Meme-Stock Mania (bloomberg.com) 45
The European Commission is planning to ban payment for order flow, paralleling potential U.S. moves to stem a practice that hit the headlines during the meme-stock mania. From a report: A forthcoming review of the Markets in Financial Instruments Directive will include a ban amid other measures to increase transparency, such as a consolidated tape of information about transactions, people familiar with the matter said. The U.S. Securities and Exchange Commission is separately weighing a ban on payment for order flow, in which trading firms pay retail brokerages to execute their trades. Regulators are concerned that video-game like prompts have encouraged excessive trading on app-based brokerages that fueled a explosive surge in value for GameStop Corp. and other stocks this year. While the day-trading frenzy is far more muted in Europe than the U.S., the practice of zero-commission trading is starting to cross the Atlantic. That prompted the bloc's markets watchdog to warn firms and investors in July of the risks arising from payment for order flow.
Shady deals in back rooms (Score:2)
Sure, you didn't think they would admit that the goal is to keep the power out of the hands of individual investors, did you? They have no way to influence the market save through an intermediary.
Re:Shady deals in back rooms (Score:5, Insightful)
Re: (Score:2)
Pennies per stock per trade. If you're trading a hundred shares that could be a couple dollars. Over years if you're an active trader that hidden drag will add up over time.
Meanwhile the middle man is doing that that for thousands or millions of customers and is making real money. Plus they may also be trading against you.
The article is paywalled for me, so I'm not really sure how payment for trade order ties into gamification or market manipulation by wall street bets. I would say that gamification by apps
Re: (Score:2)
I assume Robin Hood makes money by users making trades, so they're incentivized to convince people to trade frequently, even though that is known to lead to worse returns.
Sure, it's a business trying to make money, and that part of it is not of benefit to the customer. But what's the alternative? If you WANT to make those tiny trades, how else do you do it? Isn't it normal to have to pay someone something to execute your trade? Why is it evil when the amount of shares is small, and not when it's large? Answer, because they want to stop those people from trading.
Re: Shady deals in back rooms (Score:2)
Re: (Score:2)
Re: (Score:2)
Maybe more like scuffing the paint...
Re:Shady deals in back rooms (Score:5, Interesting)
Yeah, that's what makes the article so... odd. So there's a ban. And "other things" that "increase transparency." But the ban is on, just like you say, a practice that harms individual investors. So what's this about "Regulators are concerned that video-game like prompts have encouraged excessive trading" then? Seems disconnected from the rest of the article, which is itself worded a little strangely.
It's almost as if Bloomberg.com (run by billionaire investor Mike Bloomberg) wants you to think this move is in response to something the retail investors are doing, when in actuality, it's regulation of a shady practice the brokers are doing.
Almost. As if.
I wonder why?
Re: (Score:2)
Re: (Score:2)
Interactive Brokers has been a discount broker for decades and they don't front run. So why does retail not know more about them? Because as the salesperson said to me in 2006, "do you know how to make money on the market? We don't want people who go broke." I have remained there since then and have consistently made money.
Re: (Score:2)
Re: (Score:2)
When you get something for free, you're not the customer, you're the product.
Re: (Score:2)
As somebody who does deal with the market the idea that this takes away power from the individual investor is ludicrous! Interactive Brokers offers discount rates where a trade can be carried out costing only 1 USD (American Exchanges) since over a decade. If you think a trade costing you 1 dollar is too much, then maybe you should not be in the market. The fact that others cost say 5 or 10 dollars per trade only shows how lazy the retail investor is because they don't actually research the various brokers.
Now ban HFT (Score:5, Interesting)
Re:Now ban HFT (Score:5, Interesting)
Re: (Score:2)
No. But they should levy a tax on each trade. Perhaps the rate of taxation could decrease if you'd held the stock longer, and be 0, or even negative if you'd held it for over 5 years. And up to 100% if you held the stock for less than 1ms. And linear both between those two points and in their extension.
Re: Now ban HFT (Score:3)
How would banning HFT do you any favors? The only way you're possibly affected by it is if you do market orders instead of limit orders. The only reason to do a market order is if you MUST have it RIGHT NOW. If you can wait, do a limit order.
Im split on the issue (Score:5, Interesting)
Personally I'm split on this issue. Offering commission-free trades was one of the best things that ever happened for individual investors. Those of us who came from Wall Street and learned how to invest, now pull off multi-leg trades that are more profitable such as Condors, without eating commish on 4-8 trades which in the past was about ~$80 in commision. This meant you had to be playing with some serious money for that $80 to not matter.
Now on the other hand I personally have watched trades on platforms such as Robin Hood simply sit there during High Market activity and never execute. I'm okay with this because I'm much happier to have multi-leg trades with small amounts of money that can always be profitable over time.
I think the main problem is that similar to how you opt into options trading, you should have to opt into pfof. And if you don't you can just choose to pay commissions. Hell I'd even like to be able to pick per trade. During crazy volatility Id pay 10 bux to get my award-winning trade to execute NOW.
So instead of regulating anyting one way or the other I think we just need to have the Brokers let people pick with an informed consent about the crappy trade quality if you do.
Re: (Score:2)
The issue is not so much the fee (or lack of it), it's the way it has enabled them to gamify stock trading. They use the same scummy tactics and dark patterns as mobile game developers to encourage users to spend more.
Gambling is pretty heavily regulated and this is pretty close to what that is.
Re: (Score:2)
IMO this is a large part of the problem wrt to trading. Interactive Brokers has had discount rates for over a decade. The idea that 4-8 trades would cost you 80 dollars in commission is simply not true for the market in general. It is what the big banks charged...
The problem with Robinhood is that you don't know your trade quality until AFTER the trade. By having standards you ensure that minimum quality is adhered to. What I hate about Robinhood is that they gamified the entire stock market. And in a mark
Re: Im split on the issue (Score:2)
Could you explain in layman's terms what your multi leg deal is about?
What the heck is Payment for Order Flow? (Score:2)
Here is an example. (Score:3, Informative)
This does two things, your trade didn't actually trade for 10.00 so it is sort of a hidden fee that is not disclosed to th
Re:Here is an example. (Score:5, Informative)
(disclosure: I work at a place that pays for order flow)
Massively simplified, the way it really works is that there's multiple locations where shares can be traded - NYSE, ICE, SDPs, darkpools,
Lets say the NBBO has a $9.95 bid and a $10.05 ask. A Robinhood trader enters an order to sell MSFT at $10.00. We receive that order. We must then immediately make one of two actions:
To repeat: we're not allowed to "hold" the order or anything, we must immediately fill it at a better price than what is being asked, or pass it on to an exchange where it becomes fair game for everyone.
Now, why would we want to pay more than what the person is asking for? Two reasons:
So what happens if payment for order flow gets banned? Retail gets slightly worse prices for their trades, and limit orders will take slightly longer to get filled. Retail traders will also have to pay commissions again. HFT profit goes down a bit, since we now no longer have a strong indicator that we're trading against an uninformed trader. Probably not as much as you might expect though, since it mainly just will transfer profit from firms paying for order flow, to firms who are fast and able to hit the orders first when they appear at the exchange. Surprise, we're good at that too.
Overall just another case of a political regulatory organization who doesn't have a clue about the thing they're regulating, needing to look like they're "doing something", coming up with some rules that sound good in a news soundbite but really won't help the people they're claiming to help.
Re: (Score:1)
Thanks. But I still don't see what the problem is here. The retail investor gets their trade at their limit price or better, and your company makes a few pennies on average by making a short-term bet about subsequent price movements. Why is that a problem?
It seems like the regulators' real beef isn't with paying for order flow, but with the basic idea of zero-commission trades, which payment for order flow helps make possible. Regulators dislike zero-commission trades because they make it "too easy" to trad
Re: (Score:1)
Re: (Score:1)
Data Science Training In Jalandhar (Score:1)
Re: (Score:1)
Re: (Score:2)
IMO It is not as simple as Fly Swatter says.
Imagine you are at an blind bid auction for baseball cards. So you write down that bid that will be given to seller. Imagine for a moment the buyer offers 10, the seller offers 20. You are stuck at figuring how gives and how much. On an exchange that is a guessing game since the buyer and seller don't know each other. But now steps in a middle entity that says, "I will sell you order flow, but to do that I need to know the orders and your clients." Imagine for a m
Just a cover up (Score:2)
They're trying to slow down all the hyperactivity due to the massive 120 billion dollar a month bailouts. Big bubble