E*Trade

TD Ameritrade’s Q2 Update: To Infinity or Oblivion?

"Just when I thought I was out, they pull me back in." - Michael Corleone, The Godfather: Part III   Chicken or egg? For today's story, we know which one came first. However, we may never know for sure which one was the more prominent cause of the recent sustained spike in US stock volumes: A frictionless environment brought on by a zero-commission framework or a high-volatility market brought on by a once-in-a-century global pandemic? Granted, there may be additional factors at play here. Like the gamification of market interfaces as substitution for a sports apocalypse. People need something to do. And, when confined for extended periods, they will naturally choose paths of least resistance, especially those that entertain, are addictive and tickle financial desires... This is what one of those paths looks like; notably since March 2020: Now, I made a point last week, in "Robinhood's Trailing Stop Orders: Extreme Profitability, By Design," to say that we would try to avoid seeming redundant in our topical choices, at least [...]

By |2020-08-17T07:14:01-04:00July 23rd, 2020|For Subscribers|
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Robinhood’s Trailing Stop Orders: Extreme Profitability, By Design

"They make it so easy." - Richard Dobatse, Robinhood user (via New York Times) "A fool and his money are soon parted." - Thomas Tusser, poet   Imagine if you knew, ahead of time, exactly what bait to use? Not only which bait to attract and influence the behavior of specific customers, but how to package the output of those behaviors - into an additional form of bait - in such a way as to leverage US listed market structure and maximize the probability of financial windfall. If so, chances are, you would share some of the vision that the founders of retail trading app and rising zeitgeist symbol, Robinhood, did circa 2013... Now, the fact that Alphacution has been beating this drum for four weeks in a row (starting here, here and then here) is unintentional and unrehearsed. Certainly, we much prefer that our riffs come with a level of variety - and we will return to that variety shortly. However, as we have been grinding the numbers around order [...]

By |2021-01-04T15:28:30-05:00July 15th, 2020|Open|
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From Citadel Securities to Tastyworks: The New Economics of Liquidity, Part 1

"The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust   The data contained in the revised SEC Rule 606 reporting has landed like a transparency bomb for those few of us who try to make sense of complex - and historically opaque - market structure issues; perhaps even more so for those fewer of us that are able to triangulate on the strategic movements of the various players by weaving additional insight from multiple datasets. Add the moves of the largest retail brokerage platforms, in particular, to a zero-commission paradigm off the back of the controversially-successful Robinhood platform, and we have a potent cocktail made of disruption and intrigue. For those of you that have been following along recently, Alphacution has toggled widely between intense fixation on these themes - with our latest Robinhood-related Feed posts, "Phenomenon: On This Score, Robinhood Now Exceeds E*Trade, Others" and "Trick Shot: Robinhood Underwrites MEMX" and our recent contributions to the July 8 New York Times [...]

By |2020-10-14T21:46:52-04:00July 9th, 2020|For Subscribers|
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Phenomenon: On This Score, Robinhood Now Exceeds E*Trade, Others

"It is a mistake to look too far ahead. Only one link of the chain of destiny can be handled at a time." - Winston Churchill   The holidays, with all of its gift-giving elves, came early this year with new data; data that I have been crunching non-stop for the past week - and will likely continue to crunch in the week ahead. The exercise has yielded one "I-shit-you-not" revelation after another after another, almost as if such a trove could not exist in the public domain lying around for free. However, rather than fully unwrap any of these gifts right hear and right now (and go through the instructions in detail), I'm just going to set this one down under the tree for the weekend... Until next time...

By |2020-08-17T07:14:01-04:00June 25th, 2020|For Subscribers|
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Trick Shot: Robinhood Underwrites MEMX

“Principles for the Development of a Complete Mind: 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   If there ever was a time to see how things are connected to other things, it is now. This is particularly true in places where something that is "free" is interpreted to be "without cost." After all, like "free" drinks at the casino, human nature tends to regress to its most lizard-like tendencies when presented with a frictionless environment... When will we ever learn that "free" is never the best price? Anyway, without becoming distracted by a rant about the true cost of Facebook, et al, let's take a brief look at the impact of "commission-free" trading on the macrostructure of the US market ecosystem over a very short window since October 2019: Thanks, in large part, to the popularity of retail broker, Robinhood Financial, LLC ("Robinhood) - the upstart financial [...]

By |2020-10-14T21:47:06-04:00June 18th, 2020|For Subscribers|
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Virtu’s Optionality? Some Good News…

“That which does not kill us makes us stronger.” - Friedrich Nietzsche “We adore chaos because we love to produce order.” ― M.C. Escher   One intangible cost of being the sole US publicly-traded market making firm is the required level of financial and operational transparency - and the investor relations burden - that comes with that status. In this case, that cost may be unusually high because of the relative opacity of the competitors in this sector - what Alphacution typically refers to as the structural alpha zone of its asset management ecosystem map - coupled with the unparalleled use of technology and extraordinary magnitude of wealth generated by that small group of players. To compound this dynamic, recent dramatic shifts in the landscape for retail order flow sparked by the late 2019 moves - en masse - to $zero commissions by retail-oriented brokerage platforms, and the quick follow-on consolidations of TD Ameritrade (by Charles Schwab) and E*Trade (by Morgan Stanley), and given the pandemic-fueled volatility and volumes of [...]

By |2020-10-14T21:40:22-04:00March 12th, 2020|For Subscribers|
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Implications: 2019 Payments For Order Flow Flat vs. 2018

"Historians study the past not in order to repeat it, but in order to be liberated from it." - Yuval Noah Harari, Homo Deus: A Brief History of Tomorrow   With three quarters worth of financial reports for calendar 2019 long in the bag, it is not much of a courageous leap for us to deliver an estimate for order routing revenue - otherwise more notoriously known as payment for order flow (PFOF) - for the full year. And, with the quarterly earnings season coming in the month ahead, it won't be long before we are able to test the accuracy of this estimate. In the chart below, Alphacution extends our prior analysis not only to include 2011 and 2012 but also, more relevantly, to include the year just completed; thereby extending to nine years from six our focus on five of the primary players in retail order flow for US equity markets who also disclose order routing data: TD Ameritrade (soon to be acquired by Charles Schwab); E*Trade; the [...]

By |2020-10-14T21:47:35-04:00January 15th, 2020|For Subscribers|
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Schwab and Others Confirm Status as Casinos, Purveyors of Financial Opioids

“Learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci "There's no such thing as a free lunch." - Milton Friedman Maybe I imagined it, but a couple weeks ago, I thought I saw an article claiming that Jack Dorsey, CEO of the world's largest kazoo - you know, the thing with the familiar harmony and enough dissonance to over-stimulate your reptilian id - was set to replicate Robinhood's free trading platform on Twitter. Sure. Why not? What could go wrong?! All businesses should aspire to thrive on the basis of frictionless impulses and whatever "dumb money" is still left on the face of the planet... Anyway, it seems that the search for that gem of strategic intelligence may have been catalyzed by recent announcements by none other than Schwab, Fidelity, E*Trade, TD Ameritrade, and Interactive Brokers - which is pretty much everyone within spitting distance of the retail brokerage universe - that they were all dropping commissions on stocks, ETFs and options to [...]

By |2020-10-14T22:35:13-04:00October 11th, 2019|Open|
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Robinhood and Payments for Order Flow

It was a recent father-son (and dog) road trip. Several hours in the car, on our way to support daughter / sister, Emma, at her final regatta of the season. Head of the Hooch in Chattanooga, Tennessee. And, an opportunity for some undistracted conversation. Among the many topics was our ongoing debate about how to trade Tesla (TSLA). Eddie has proven himself to be fairly decent scalper of this volatile name, so I usually ask how he is positioned and the levels he thinks are meaningful. Anyway, it turns out, he is trading on the Robinhood platform - no more than a few shares at a time - and paying zero commissions which, of course, improves his net profitability. This is the main attraction on top of the fact that he can toggle between trading stocks, playing video games, watching YouTube, Instagramming with his friends and listening to music all on the same device. (No wonder he is always wiped out!) So, this got me to thinking about some of [...]

By |2020-10-14T21:50:30-04:00November 14th, 2018|For Subscribers|
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