[bboygravity]

The way this is done at scale is legalized front-running.

You buy order flow from "free" retail brokers like Robin Hood (as a market maker) and then literally front run ALL trades. You then tell everybody you're giving them the best price (also the only price), lol.

In other words: legalized crime.

[diggan]

> legalized crime

Hmm? Either it's legal, and not a crime. Or it's illegal, and therefore a crime. What you mean is "legalized crime" exactly? Things considered legal but unethical for whatever reason?

[gtani]

here's 2 oft cited papers on PFOF so people can think about this, general conclusions are there is more possibility of actions detrimental to retail traders in options markets

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4609895

https://wifpr.wharton.upenn.edu/wp-content/uploads/2023/10/P...

[drexlspivey]

You need microsecond latency for HFT, certainly not enough time to consult an LLM

[MOARDONGZPLZ]

What does this mean? Sorry, not up on stock lingo. Is this effectively like having the results of a race a minute early or something?

[rco8786]

Yea that's a decent analogy. You see the incoming trades before they are actually executed, and you can react accordingly.

[dist-epoch]

If somebody wants to buy an orange for $2 and I sell them one for $1.98, that's "legalized crime"?

I don't think you understand how this works. It's not about front-running them, it's about that they have no clue what they are doing, so it's extremely unlikely their trade will be profitable, thus you gain by being the other side.

That $0.02 of price improvement is the price you pay for the privilege of giving a better price to clueless people.

[bboygravity]

I think you don't understand how this works.

You go to the market (broker) and say you want to buy an orange for 2$. You go to the "free" market (Robin Hood) that doesn't have any transaction costs for orange buying. This is your own choice. There are tons of orange sellers at the market who sell oranges for different prices, but it doesn't matter, because everybody has to go through the same guy (Citadel, Citadel pays for this privilege). Everybody has to go through Citadel, because everybody wants to trade for "free".

Citadel gets your 2$ order for an orange before anybody else at the market. They find someone who is selling an orange for 1,80$, they buy it from them and sell to you for 2$ and pocket the difference.

In reality, it's even worse than that: they will sell you the 2$ orange instantly without owning any orange or buying any orange and figure out how to get the orange later. Or never. (since stocks are digital you can pretend to deliver a stock (without actually delivering it) very easily as opposed to pretending to deliver an orange)