https://www.zerohedge.com/news/2018-09-15/robinhood-investing-app-makes-millions-selling-users-data-

[d08]

I prefer to be delusional if it means that my account is safe even during highly volatile times whem other brokers go belly up because they can't shoulder the negative account balances their insane clients caused and can't cover.

First off, the margining system makes no sense. I can be completely hedged with an instrument with -.9 correlation, brokers treat all positions separately and as risk increasing.

If I'm short various global ETFs and try to go long in a Japanese equity, my risk would actually go down, not up. I'm not talking about pikers buying TSLA with everything that's available.

The margining system does not protect anyone, if severe movement happens in the off-hours then the broker is going to fold anyway.

Why do they accept these insane clients then? They're free to stop providing services.
Maybe make rules that penalize people who need to be penalized?

 

[Overnight]

It is interesting to think about that idea, about how IB makes so much money doing what they do with crazy auto-liquidations (among other things), while smaller brokers make much less without auto-liquidations.

Peter Jefferly is making a killing by going psycho on rapid margin requirement changes which cause the auto-liquidations, while the smaller guys who stick with the exchange minimums grow much more slowly.

So which is the more-quality service? Those who go all vulture, or those who honor the true nature of the markets?

As we can see by the books, IB has suckered them all in, and are making boatloads. The smaller guys, the slow-and-steady guys, are more honest, but less profitable over time.

A sad testament about our times. The Gekko effect... "Greed is good."

 

[Sig]

Well, it does depend on how those orders get filled. If execution related cost (non commission cost) vastly exceed the perceived benefit of not paying commission (which can easily happen) then this broker should disclose that. Apparently that degree of reporting has not happened. So, without knowing more details than you do I would at least say "it depends". Just because something is seemingly "free" does not justify it being poisoned right?

They have been disclosing payment for order flow per the law since day one. And only a moron would think they weren't getting payment for order flow, given the fact that they have to pay their employees somehow. Exactly what "reporting" have they failed to do again?

 

[GRULSTMRNN]

First of all I hear your complaint about correlations with IB's margin computations. I agree with you that the current way they do it does not make sense. But that is just one part of the margin issue. The part others and I was alluding to referenced high margin requirements that exceed exchange mandated margins. I stand by my opinion that I love a broker who is overly conservative in this area as it lowers counterparty risk. People who don't like it have plenty other choices.

But back to the portfolio margin system for a moment. Would you agree that correlations between even two stocks in the exact same market and even sector can get completely out of sync at times? If yes, then we can at least give some credence to a system where margins are purely additive rather than partially offsetting. IB apparently lies somewhere in the middle.

What I admittedly don't like are the surprises that come out of IB sometimes. As long as there is an announcement where people can take action beforehand, I am not concerned. What I don't like is IB's wacko margin model turning from positive 60% correls to a negative 40% a day after. That is insane and causes the large changes in margin computations.

First off, the margining system makes no sense. I can be completely hedged with an instrument with -.9 correlation, brokers treat all positions separately and as risk increasing.

If I'm short various global ETFs and try to go long in a Japanese equity, my risk would actually go down, not up. I'm not talking about pikers buying TSLA with everything that's available.

The margining system does not protect anyone, if severe movement happens in the off-hours then the broker is going to fold anyway.

Why do they accept these insane clients then? They're free to stop providing services.
Maybe make rules that penalize people who need to be penalized?

 

[GRULSTMRNN]

Aren't you going a bit extreme? IB certainly does not make much money from auto liquidations. Read the financial statements and contained disclosures its not stated by name but you can get a pretty good guess. I frequently do as it is the broker with my largest holdings among other brokers. Auto liquidations are designed and work to lower counterparty risk. And it works as designed.

We can talk about the way it works which contains many flaws but accusing IB directly from financially benefitting from this feature in big ways seems quite a stretch.

It is interesting to think about that idea, about how IB makes so much money doing what they do with crazy auto-liquidations (among other things), while smaller brokers make much less without auto-liquidations.

Peter Jefferly is making a killing by going psycho on rapid margin requirement changes which cause the auto-liquidations, while the smaller guys who stick with the exchange minimums grow much more slowly.

So which is the more-quality service? Those who go all vulture, or those who honor the true nature of the markets?

As we can see by the books, IB has suckered them all in, and are making boatloads. The smaller guys, the slow-and-steady guys, are more honest, but less profitable over time.

A sad testament about our times. The Gekko effect... "Greed is good."

 

[GRULSTMRNN]

I was not alluding to the mere statement that they sell order flow which I 100% agree with you.

My issue is with the possibility that a customer is way worse off with their executions even in the absence of commission. If that was true and I stress again that it is a mere allegation, then this broker is not really a broker but just an entity that monetizes a user base and it should be disclosed. That is precisely why Facebook, Google and others are scrutinized by regulators right now, certainly in Europe. When a customer quite clearly is being turned into the product then clients should be made aware of that. Unfortunately not everyone is sharp in their mind. In most every society we need to write and enforce laws to protect the dumbest from harming themselves and others not the smartest.

In my book when a broker does not primarily make money from the business it declared it is in then that is misleading clients and regulators. The exact nature of a business has to be declared in the business registration to start with. When a broker primarily derives revenue by selling customer data then that is not a broker anymore. Look up the definition of "broker". The danger here is that this entity has no further interest in being aligned with the customer's interest.

You may be against all sorts of regulations or protections that limit choices and freedom and I understand and respect that. I tend to go a step further and like the dumb protected from harming themselves and others. Because think about it, who suffers from dumb people making stupid choices? Everyone. It's a burden to the entire society when a group of uninformed individuals stumbles from one trap to the other.

They have been disclosing payment for order flow per the law since day one. And only a moron would think they weren't getting payment for order flow, given the fact that they have to pay their employees somehow. Exactly what "reporting" have they failed to do again?

 

[Sig]

I was not alluding to the mere statement that they sell order flow which I 100% agree with you.

My issue is with the possibility that a customer is way worse off with their executions even in the absence of commission. If that was true and I stress again that it is a mere allegation, then this broker is not really a broker but just an entity that monetizes a user base and it should be disclosed. That is precisely why Facebook, Google and others are scrutinized by regulators right now, certainly in Europe. When a customer quite clearly is being turned into the product then clients should be made aware of that. Unfortunately not everyone is sharp in their mind. In most every society we need to write and enforce laws to protect the dumbest from harming themselves and others not the smartest.

In my book when a broker does not primarily make money from the business it declared it is in then that is misleading clients and regulators. The exact nature of a business has to be declared in the business registration to start with. When a broker primarily derives revenue by selling customer data then that is not a broker anymore. Look up the definition of "broker". The danger here is that this entity has no further interest in being aligned with the customer's interest.

You may be against all sorts of regulations or protections that limit choices and freedom and I understand and respect that. I tend to go a step further and like the dumb protected from harming themselves and others. Because think about it, who suffers from dumb people making stupid choices? Everyone. It's a burden to the entire society when a group of uninformed individuals stumbles from one trap to the other.

Actually I'm considered a bleeding heart communist fascist liberal around these parts, so certainly no problem with the concept of consumer protection laws. However in consumer protection we have a long history of making the assumption that it's considered common knowledge if a service is offerred for free that the company offering it is being otherwise compensated, going back at least as far as commercial radio and even further back to free news publications. Is NBC in the business of making TV shows or selling advertising? By revenue clearly they are an advertising firm but no one gets upset that they call themselves a television producer and don't disclose their revenue model on air once an hour!

 

[GRULSTMRNN]

I see your point but your example may not be a fair comparison to brokers selling order flow. I take no issue with a broker who sells order flows as long as the customer is not made SIGNIFICANTLY worse off. This, however, seems to be the case judging from various posts about this broker on this and other forums. When I watch TV then I understand that a TV channel finances itself through advertising. But I am not made worse off by exposure to those ads and I can tune out during ads and tune back in after the ads are done. Here a broker apparently is so closely aligned with dark pools and hedge funds that the question arises how customers can be treated fairly even on average. Precisely because this is a relatively free market space the question needs to be raised why hedge funds are willing to pay 5-10 times the going rate to this broker when they can purchase order flow at hundreds of other venues. And I believe an investigation or at the very least public exposure appears fair in order for customers to understand what exactly they are getting.

Actually I'm considered a bleeding heart communist fascist liberal around these parts, so certainly no problem with the concept of consumer protection laws. However in consumer protection we have a long history of making the assumption that it's considered common knowledge if a service is offerred for free that the company offering it is being otherwise compensated, going back at least as far as commercial radio and even further back to free news publications. Is NBC in the business of making TV shows or selling advertising? By revenue clearly they are an advertising firm but no one gets upset that they call themselves a television producer and don't disclose their revenue model on air once an hour!

 

[Sig]

I see your point but your example may not be a fair comparison to brokers selling order flow. I take no issue with a broker who sells order flows as long as the customer is not made SIGNIFICANTLY worse off. This, however, seems to be the case judging from various posts about this broker on this and other forums. When I watch TV then I understand that a TV channel finances itself through advertising. But I am not made worse off by exposure to those ads and I can tune out during ads and tune back in after the ads are done. Here a broker apparently is so closely aligned with dark pools and hedge funds that the question arises how customers can be treated fairly even on average. Precisely because this is a relatively free market space the question needs to be raised why hedge funds are willing to pay 5-10 times the going rate to this broker when they can purchase order flow at hundreds of other venues. And I believe an investigation or at the very least public exposure appears fair in order for customers to understand what exactly they are getting.

I think the article that @ajacobson posted showed that as usual the breathless accusations of ZH were off base re the 5-10 times the going rate for order flow. Hyperbole is pretty typical coming from almost anything at ZH, you've got to take it with a massive grain of salt. I think there have been a few unofficial side by side tests done even here on ET that show pretty comparable execution there as most other brokers, certainly not 5-10 times worse.

 

[GRULSTMRNN]

Fair, I admit I got those 5-10x figures off the article but then I also made sure to prepend my initial comments with "alleged". The truth as always probably lies somewhere in the middle

I think the article that @ajacobson posted showed that as usual the breathless accusations of ZH were off base re the 5-10 times the going rate for order flow. Hyperbole is pretty typical coming from almost anything at ZH, you've got to take it with a massive grain of salt. I think there have been a few unofficial side by side tests done even here on ET that show pretty comparable execution there as most other brokers, certainly not 5-10 times worse.