“In 2010, the Securities and Exchange Commission (SEC) began looking at the practice of quote stuffing in relation to the Flash Crash. The agency started assessing whether the practice violated ‘existing rules against fraudulent or other improper behavior’ or caused a disadvantage through distorted stock prices. SEC chairman Mary Schapiro said the agency would assess whether traders must hold orders open for minimum periods of time and other changes to financial trading. No such regulations have been enacted (except in Italy).”— Wikipedia page for Quote Stuffing under “regulatory changes and enforcement.”
Technology, Order-Preferencing Arrangements, and Robinhood
Technology can be exciting for how it can enhance and simplify our lives as well as horrifying for what can be done with it when it falls into the hands of bad actors seeking to exploit its power.
Much of the financial industry has been trending towards a digital future for decades with the disappearance of runners on the floors of stock and options exchanges with traders now on their mobile devices, tablets, and laptop terminals. Recent trends influenced by this years events have accelerated the need for execution, privacy, security, and quick payments for both individuals and institutions alike. Large retail brokerage firms offering discounted or even free trades are being exposed for negotiating and selling their order books to large securities dealers through order-preferencing arrangements, which were supposedly pioneered by Bernie Madoff.
Robinhood Markets Inc., the maker of the free trading app, has grown in popularity with an increasing customer base over the past year for a plethora of reasons. The app, “a pioneer of commission-free investing,” moved into crypto asset trading quickly in 2018 helping it grow its user base when major platforms were skeptical of buying and selling bitcoin, ether, and other digital assets on behalf of their customers. Aside from its crypto product, Robinhood has cash management, fractional shares, stocks of individual companies, bundles of investments (ETFs), and options offered through Robinhood Financial as well as a “Gold” package that starts at $5 per month that allows access to research reports, trading on margin, and the ability to make larger deposits with faster account funding. A 30-day trial is available for the latter product, but that is not where the company generates most of its revenue.
The retail investment platform has come under careful examination by the Financial Twitter community, “FinTwit,” after its practices known as payment-for-order-flow in financial arrangements with third-party market venues went viral following a series of tweets from a popular account called Zero Hedge (@zerohedge) months after being banned from the social media website. The tweets included details of such arrangements as well as the amounts received by Robinhood Financial and Robinhood Securities for routing trades to a handful of venues that happen to be the most dominant high-frequency trading firms notorious for “front-running” retail investors to make large sums of money off of the smallest fluctuations in prices from their algorithms by buying the shares before the Robinhood traders can get them and turning around to sell those shares that they wanted back them at a negligibly different price. These firms use the excuse that they are “providing liquidity” to the market to get away with selling the shares at marginally lower or higher prices that in turn accentuates the momentum behind the market for those shares while those firms make money either way it goes by being directed the equity order flows of retail trading clients telling them which way they want it to go.
Stealing from the Poor, and Giving to the Rich
These revelations are ironic.
They show the direct opposition Robinhood’s business model has with their namesake, the heroic outlaw who steals from the rich and gives to poor on top of being beloved for his deeds by the townspeople. Instead, the app steals from the poor to give their orders to the rich seeking to become richer at the disgust of FinTwit as well as niche trading communities on Reddit. It is showing there is a hidden cost to discounted trades or free brokerage firms while highlighting the need for greater transparency in our financial marketplaces because as billionaire investor and NBA Warriors team owner Chamath Palihapitiya (@chamath) who shared the Zero Hedge tweet also responding sharply to it stated, “And this will eventually fuck over the same retail traders on @RobinghoodApp who started it in the first place. This is shady AF…”
Retail traders in the traditional commission model use their trading applications and platforms to place orders that are taken by the broker and then routed to a market maker who executes the trade, but in the no-commission model without any fees on trades market makers pay a pre-set fee to the broker in the pay-for-order-flow model (Robinhood, for example, receives payments averaging less than a penny per share for order flows and/or each trade executed). This is the key business driver that enables the zero-commission stock brokerage industry thanks to those unsavory order-preferencing arrangements that are cropping up elsewhere too. Crypto asset exchanges such as Coinbase Pro have their order books practically front-and-center on their user interfaces to enhance the experience from having a visualization of changing prices and with varying increments of volume. Giving the trader a view into the market while also effectively democratizing it for everyone’s benefit by allowing anyone to see the order book, thus using it to their full advantage seeing the spread in buyers and sellers to find their own sweet spot among all of the open bids and asks.
According to SEC Rule 606 disclosures, the selling of order books and order routing practices also happens at the big retail brokers such as Charles Schwab, e*Trade, Fidelity, and TD Ameritrade among others. It seems that the retail brokers have put in place limits that cap how many trades are sent to specific market makers, typically seen in percentages, to mitigate risk and concentration concerns though it is not an enforced standard or even used by everyone in the industry. For not considering all execution quality factors, Robinhood was fined as well as paid $1.25 million in December 2019 without admitting or denying wrongdoing according to the FINRA announcement of “best execution violations related to its customers’ equity orders and related supervisory failures.” Not considering price improvement, for instance, is a major concern for financial authorities that want to prevent market makers from taking retail traders for a ride and creating undue momentum and volatility.
The Rise of Davey Day Trader Global
No suit is safe with the rise of Davey Day Trader Global, or DDTG for short.
Dave Portnoy, founder and president of Barstool Sports as well as owner of DDTG, who made his bones from his popular blog that has grown an avid almost cult-like following focusing on gambling, sports, and hot takes in this golden age of content successfully pivoted away from his usual shtick towards day trading and finance during the quarantine with the lockdown preventing much of the professional sporting events from taking place. Many of the loyal Barstool followers known as “stoolies” that would have been otherwise betting on sports are now transitioning towards investing in stocks and joining the trading platforms mentioned above, which are basically just another sort of casino with their own variety of games of chance that people can wager on (arguably, they are just as dangerous). While his exploits are gaining traction in the financial news making for an entertaining underdog story, odds are more likely than not that his story will end up being one that winds up being a cautionary tale of investing in this century.
Attention began with public announcements via social media that the Barstool Sports founder was skeptical of Dr. Anthony Fauci when the NIAID Director urged Americans to take health and social distancing guidelines seriously suggesting the precautions would help curtail the spread of coronavirus as well as recommended holding off on sporting events until further notice. Dave Portnoy, a specialist in being a contrarian and stirring controversy on the Internet, then doubled down on his stance that the shutdown from the pandemic should not be taken as seriously as the health experts and mainstream media suggest. The self-proclaimed “King of Content” soon began taking swipes at one of the greatest investors of all time, Warren Buffett, who credits traditional value investing and his long-term approach to his success.
“I’m sure Warren Buffett is a great guy but when it comes to stocks he’s washed up. I’m the captain now.”— Dave Portnoy, Founder of Barstool Sports
Portnoy who believes in his and DDTG’s ability to outperform the entire market being weary of the “blue checkmarks” and “pin-stripped suits from Wall Street,” referencing the badges on Twitter of verified accounts and hedge fund managers that are often featured with talking heads on financial news networks proclaimed, “Warren Buffett is 90 and washed up!” From that point forward, he has started making the headlines after buying the airline and cruise stocks following the announcements that Berkshire Hathaway and the “Oracle of Omaha” dumped their shares. Live streaming his forays into day trading all along the way, the rise of Davey Day Trader Global began and quickly saw many of the loyal stoolies and gambling wannabe’s jumping on the day trading bandwagon becoming “retail bro’s” creating accounts on discounted and free brokerage firm’s platforms to trade side-by-side with Dave and DDTG.
A Level Playing Field? Not So Much…
Unbeknownst to many retail traders, the market is a not so level playing field.
Market makers have the power and resources to employ complex strategies and advanced tactics that skew the arena in their favor by manipulating and moving markets. Anyone suggesting that Dave Portnoy also known as “El Presidente,” a self-admitted novice that does not know what he doing and flying blind in his own trading cockpit, is trying the bend stocks towards his own will and good fortune is obviously ignoring that glaring truth above or just severely uninformed about of the magnitudes of difference that DDTG wields compared to the “Flash Boys“-like high-frequency trading firms on Wall Street. For the most part, Dave Portnoy and his retail supporters in the stock market are trying to compete against forces that are by far greater than they are that is making them out to be some of the biggest victims or martyrs at the hands of these questionable practices from the brokers and market making firms mentioned above. On its face, it appears to be an easy comparison and pun to say its another story resembling David and Goliath.
“The U.S. stock market now trades inside black boxes, in heavily guarded buildings in New Jersey and Chicago.”― Michael Lewis, Flash Boys
Amplifying egos and deflating dreams in milliseconds or less, the high-frequency trading algorithms and firms using the stocks that Dave Portnoy shouts out of the comment section or pulls from scrabble pieces on his streams can wreak chaos on him and his unwavering DDTG gang of day traders trying to buy and sell those shares that these firms front-run while printing their own profits either way the market decides to go. It is actually making the case for index as well as value investing too as opposed to day trading and momentum investing because if Dave along with his faithful stoolies realized the significance of the saying that they love to repeat, “Stocks only go up.” If only they accepted that there are bigger and better equipped firms with their own inside stairwells leading to the black boxes dictating the direction of the stock market, they could see that simply buying the index fund for the entire market or exchange traded funds for specific sectors and calling it day, more often than not, is the best as well as most cost-effective game plan for capturing gains rather than just picking and trading random stocks without any sort of methodology or strategy.
It’s “big brain time” for El Pres and the gang of DDTG day traders as well as financial professionals supporting their brick-by-brick movement, and that means they need to devise a scheme that cuts back to Barstool’s core of being, “By the common man for the common man.” Returning to gambling on something that has a more fair and transparent market structure, bitcoin and crypto assets as alternatives that he and his followers can buy and speculate on as well as educate others about would greatly help limit the obstacles that newcomers encounter while exploring this new asset class and market as well as aid in pushing the them into the mainstream, not to mention, so they can directly benefit too from becoming early adopters with handsome gains from owning them ahead of the “suits” following his daily streams that are too about worried their client’s stock portfolios and reputations on Wall Street to make such a move. Portnoy wants a fight against the suits, and the best way to do so is by not playing into their games that they rigged for themselves and instead opting for new ones that they don’t hold authority over or cannot influence easily with their money printing machines.
A New Hope
A rebellion is underway against the same Empire of Blue Check Marks and Pin-Stripped Suits on Wall Street, bitcoin wants to restore freedom and transparency in global marketplaces while creating a new alliance of mathematics and money.
Think about the possibilities if Portnoy of Barstool Sports with the backing of the Penn Nation Gaming company and his DDTG gang of day traders fully embraced bitcoin. Their relationship should be especially symbiotic to one another since gambling and prediction market’s websites commonly are known to accept and deal in bitcoin for its ability to make quick, secure payments online. It also levels the playing field for everybody involved from the ease of access and transparency inherent to Bitcoin compared to trading in the stock market these days.
Wouldn’t it be a commendable gamble if buying into bitcoin in protest against “the suits” paid off generously for DDTG? Barstool and Penn should combine efforts to increase its acceptance and educate people about it as well as teach them about responsible investing plus all of the risks associated with it. Although it is not a day trade and more of an insurance play for the long-term with the outlook that bitcoin becomes the next world reserve currency, there is an opportunity that owning even the smallest percentages (such as 1% of total assets) will have a positive impact on the performance of one’s portfolio and overall net worth as a hedge against debasing fiat currencies.
“You can’t win, Darth.”― Obi-Wan Kenobi, Star Wars Episode IV: A New Hope
Let the suits take their swipe at you, Dave. It’s time to become one with the force and help make the next episode in my series of FED MADNESS be named A New Hope: Barstool & Bitcoin. You can’t beat the suits at their own game or fight the Fed without the resources they have at their disposal, but if you let them try to strike down DDTG then it could be your way of delivering a much more devastating blow to them in the future by forwarding an important message to the next generation of day traders about the dark side of finance.
Bitcoin Bends to No One’s Will, Not Even Wall Street
If bitcoin hit its all-time-highs from speculators, just imagine what DDTG and the stoolies would do for its price!
While possibly being instrumental in taking the orange coin and its entire asset class with it to new heights, the increasing value in annual lows for bitcoin is really driven by its “HODLers” or owners that refuse to sell despite where the price is going holding steady in the belief their “stack” will be worth much much more in the future. A number of applications and services are available today that allows people to buy and send as little as one one-millionth of a bitcoin, the smallest unit of account named a “satoshi” or “sat” for short, which allows them to accumulate small increments that they stack on top each other through the ebbs and flows of the market without taking on too much risk at one time. This translates to bitcoin being a better savings mechanism should its price continue to rise in value versus the dollar-cost-average basis of their initial investment allowing those people to create more wealth for themselves or give themselves more money to bet with if they so choose to take profits.
“When the state finds itself unable to meet its committed expenditure by raising tax revenues, it will resort to other, more desperate measures. Among them is printing money.”― James Dale Davidson & Lord Rees-Mogg, The Sovereign Individual
“Taking profits is for losers,” Portnoy has gone on the record saying when speaking to financial pundits recently. From the sounds of it, he already likes the idea of “HODLing” and would fit right into the bitcoin and crypto asset communities. As a proponent for freedom and prosperity, Dave Portnoy with DDTG and Penn National have a tremendous opportunity with incredible upside if they chose to adopt and embrace bitcoin and crypto fully themselves as well as within their own respective companies to help them become more mainstream, understood, and widespread.
Not expecting that it will come easy to DDTG or that they will suddenly decide to jump head first into crypto, but it wouldn’t be that hard to change the “brick-by-brick” mentality to just apply it to bitcoin easily changing it to a “sat-by-sat” movement that he and all the stoolies can do together. They can still get in on the ground floor of a new currency and asset class with fabulous potential into the foreseeable future with demand for digital payments increasing in these modern times. As the Rise of the Day Trader takes place, they should know the facts before embarking on their investment journeys and equip themselves with the knowledge as well as tools necessary to level the playing field before defeating the suits once and for all.
The Smart Money vs. Schrute Bucks
Smart money has enter the chat, and they are putting their money where their mouth is by buying and holding bitcoin for a long-term payout.
Bitcoin, being a non-sovereign asset with a hard-capped supply backed by mathematics and secured from its strong encryption, will never be bent or broken by it ever being massively inflated similar to the “Schrute Buck“-like dollars that are being created at the behest of the Suit Empire. Having been born out of the financial crisis of 2008 that has recently been trumped by the level of stimulus of the 2020 crisis, bitcoin’s edge is its programmatic scarcity and verifiable transparency that Wall Street filled with its cheap tricks of financial engineering and imitation games offering shares in the next so-and-so company could never can truly offer. As the show goes on and the stakes becomes higher, I believe betting on bitcoin will turn out to be an incredible gamble with huge growth potential compared to bonds, stocks, or any other asset if economic trends continue to head in the direction and on the trajectories that they are heading at the moment.
The new breed of day traders without a fair fight unless they adapt to have more sophisticated trading setups can barely compete if they can even stand a chance against the much larger, faster participants that easily exploit them whether they know it or not. Not to discourage them from trying, but rather give them the edge and information needed to help level the playing field as well as protect some of their wealth while trillions of dollars are being added in bond buying programs for corporations additionally with mortgage-backed securities, repurchase agreements, swap lines, and temporary credit facilities from our Federal Reserve bank may end up culminating into a giant tidal wave of money that wipes out the entire economy as we know it after seeing a total loss in value of the underlying currency. As socialist policies and politicians are slowly normalizing themselves and play their infinity games with our dollar as our stock market rages back towards all-time-highs, it needs to be understood that they represent the descent of money and its value figuratively and literally by issuing more of it for innumerable causes they deem worthy, which will end up diluting the accumulated wealth of the nation as well as the savings of hardworking men and women earning enough to make it in the top tax brackets while they simultaneously try to increase their taxes on them.
Investing in the infrastructure layer of a newer, more transparent macro economy by buying bitcoin and ether as well as the application layers being built on top of their technology gathering users from around the world will be how the younger generations in this decade create wealth that lasts them centuries. Crypto assets have greater property rights and protections that were not possible previously with traditional assets coming before them since they are bearer instruments that are digital as well as attached to distributed ledgers available to anyone around the globe possessing an internet connection for real-time auditing and verification. Bitcoin, emerging as the most sound electronic cash system in the world, preserves the highest ideals of Capitalism and addresses the problems that are plaguing fiat currencies around the world that are vulnerable to being debased by irresponsible bureaucrats and politicians.
All the best and to the moon,
Drop the stocks and start stacking sat’s in bitcoin!
Bitcoin is money for smart people, you probably wouldn’t be interested.