"You cannot escape the responsibility of tomorrow by avoiding it today."Abraham Lincoln With protestors storming the U.S. Capital - some of which breaching the outer doors and freely strolling the U.S. Senate floor - as surreal and unprecedented backdrop, I sit down to organize a sketch of Alphacution's outlook for the year ahead, starting with a very wide lens: The U.S. economy - much like the rest of the other "developed world" economies - is naturally weaker than the meticulously curated employment and productivity numbers suggest. Technology adoption (from workflow automation to social media distraction), growing debt burdens, ossified resource allocation practices, cross-region labor arbitrage, deteriorating infrastructure, and other factors all converge to deteriorate "life, liberty and the pursuit of happiness" for a growing portion of the population. The COVID pandemic of 2020 - and however long it remains disruptive throughout 2021 as vaccines are being rolled out - acts as an accelerant of many of these factors. Ours is a deteriorating version of capitalism. Symptoms emblematic of the stage [...]
"You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever." Steve Jobs I was going to start out by saying that it's been a pivotal year for Alphacution. Problem is, I said the same things at this time last year. So, I supposed that means it's been a good coupla years. The pandemic, volatility, subsequent lockdown - and some luck in timing - drove a lot of attention towards Alphacution's content in 2020. Clearly, Robinhood and payments for order flow (PFOF) were top themes for the year. Our Feed post on Robinhood and trailing stop orders led the year in page views, and represented like no other before it what it looks like when a story goes viral. Not to be outdone, the timely post on the downfall of Ronin Capital also attracted a ton of attention. In fact, if [...]
Alphacution quoted in Financial Times story by Madison Darbyshire in London and Eric Platt and David Carnevali in New York on Robinhood's controversial brokerage practices, "Robinhood faces questions over business model after US censures" (December 19, 2020).
"Do not go where the path may lead, go instead where there is no path and leave a trail."Ralph Waldo Emerson The juggernaut that is the Robinhood commission-free trading app has accumulated some dents and bruises over the year, along with a number of truly breathtaking successes. One of the more overexposed stories in a year engorged with superlatives, system outages, a customer suicide and, most recently, the hacking of thousands of accounts has challenged Robinhood's meteoric rise along the way. Together, these headwinds have delayed Alphacution's prediction of the timing of an oncoming IPO. All that said, one aspect of the Robinhood juggernaut - certainly among the more important aspects to its key stakeholders - is persistent growth in order routing revenue; the largest component of total revenue. After two quarters of blockbuster, pandemic-fueled numbers showcasing the inner workings of Robinhood's order flow firehose, the Q3 2020 order routing figures have recently been made public. The headline is that after the second quarter's monstrous $180.3 million in payments for [...]
“Study the science of art. Study the art of science. Develop your senses – especially learn how to see. Realize that everything connects to everything else.” – Leonardo da Vinci Market making in individual stocks has become so competitive that most hyperactive strategies – the ones that reside in Alphacution’s structural alpha zone – have turned to increasingly rely on some form of ETF arbitrage. This competitive dynamic is exacerbated by factors such as liquidity fragmentation, liquidity internalization, payments for order flow (PFOF), and the winner-take-all impacts of process automation (aka – scaling via technology). For those proprietary trading firms with few, if any, options positions in their portfolio, cash ETF position concentrations (based on total 13F position counts) are represented as follows: When we isolate the leading order flow wholesalers and consider aggregate cash ETF positions as a percentage of 13F gross value, one of the clues that rises to the surface (in concert with the findings in the prior chart) is the prominence G1 Execution Services (G1X), a unit of legendary derivatives powerhouse, Susquehanna [...]
“The perfect stock trading app for the videogame generation was supposed to “democratize finance” with zero-commission trades. But the primary plan was to get rich by selling customer trades to the market’s most notorious operators.” – by Forbes Staff Writers Jeff Kauflin, Antoine Gara, and Sergei Klebnikov Alphacution contributes to Forbes development of story on Robinhood, “The Inside Story Of Robinhood’s Billionaire Founders, Option Kid Cowboys And The Wall Street Sharks That Feed On Them” (August 19, 2020).
“New investors are riding the stock market’s climb during the coronavirus pandemic.” – by Matt Krantz, Personal Finance and Management Editor, IBD Alphacution contributes to Investor’s Business Daily’s development of story on Robinhood, “Beginning Investors Are Charging Into Stocks; What Could Go Wrong?” (August 14, 2020).
“Name of the game? Move the money from your client’s pocket into your pocket. Number one rule of Wall Street: Nobody knows if the stock is going up, down, sideways or in … circles. It’s all a fugazi…“ – Mr. Hanna, Wolf of Wall Street On Monday, August 10 at exactly 11am EDT (you know, after the opening bell was safely in the rearview mirror), Robinhood Markets, Inc. – the anti-incumbency insurgent trading app platform and self-proclaimed democratizer of all things financial – set out to dominate the week’s financial news cycle by enticing media powerhouse, Bloomberg, to drop a news bomb into an ecosystem already negligently over-stimulated on the topic: “Robinhood Blows Past Rivals in Record Retail Trading Year.“ One piece of data was exclusively revealed to Bloomberg at the center of this story: 4.31 million daily average revenue trades – commonly known as DARTs (and generally defined as customer orders executed divided by trading days) – were recorded in June with the additional explanation that “the firm is revealing the data for the first time, [...]
Alphacution Director of Research, Paul Rowady, joins eXponential Finance Podcast host and Tokyo FinTech founder, Norbert Gehrke, for a spirited – if not, highly-caffeinated – and entertaining discussion covering a wide range of Alphacution’s most illuminating research themes, from the genesis of its trading and asset management ecosystem map to the concept of alpha capacity to the implications of the current commission-free trading landscape and, of course, the riveting Robinhood phenomenon. Enjoy…
“The rush of armchair traders investing through Robinhood, an easy-to-use app for trading stocks, may be helping inflate a stock bubble and setting up investors for a potential bust.” – by TheHill.com Reporter Niv Elis Alphacution contributes to TheHill.com’s development of story on Robinhood, “Are trading apps propping up markets?” (August 6, 2020).