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I'll just chime in and say I believe you are misinformed and wrong on this issue. I can say definitively that my firm which engages in HFT and all the other quant/HFT firms I know of have decided to stay clear of the meme stocks, ie. GME, BB, AMC, and a few others and I am not aware of any open secret that HFT firms are sneakily taking advantage of this situation. Your statement that HFT firms think that retail traders have no clue what they're doing is a complete misrepresentation of the intention behind PFOF. It's not at all that we think retail traders are idiots, it's that retail orders are usually not coordinated and sustained activities the same way that institutional orders are. If an institution is buying and I sell into it, it is quite likely that the institution will continue buying more and more over a long period of time which increases the duration of my exposure to that institution's order flow. Furthermore it's unlikely that institutional order flow on the continuous market will balance out with other institutional order flow, since in situations where such an opportunity exists, brokers for said institutions will arrange for a block trade or use auctions instead of the continuous market. So trading against an institution means assuming exposure for an extended period of time. With retail orders, usually a trader buys with a few orders in a way that's typically uncoordinated with other orders and that's it. I don't need to be worried that if I sell to a retail trader that a whole bunch of further traders will follow behind them in the same direction, increasing my exposure. This is not to say that institutions know what they're doing and retail traders don't, or vice-versa. An institution may have no idea what they're doing and pissing their money away and I still won't want to trade against it simply because as an HFT firm my goal is to lock in a spread as quickly as possible as opposed to speculate on the long term prospects of a company. If anything, to the extent that there is an open secret in this industry, it's that institutions don't perform much better or have much of an advantage over anyone else. That said even if they did it wouldn't matter one way or another, what I care about is that the order flow that I am trading against can balance out over a short period of time so that I can lock in the spread. It is precisely because retail traders are behaving in a coordinated manner on meme stocks that my firm and all the other ones I know about are not participating in them. Retail flow on meme stocks is often coordinated, at least implicitly so as an HFT firm you may risk holding a significant position for a long time, which is not ideal. That said the market is very big and the meme stocks constitute but a tiny fraction of a fraction of the activity. It's not a particularly big deal one way or another. |