Welcome back to the channel everyone today, i'm going to talk about how market makers steal millions from the apes each and every week with payment for order flow. Trust me guys you do not want to miss this video, so stay tuned and let's make some money, but guys before i dive into the video. I just want to give a massive shout out to the 3100 of you that have currently ding that notification bell, because you guys are always the first to watch a new video as soon as it's released so guys be sure to drop a like down below subscribe To the channel and ding that notification bell, if you haven't already so that you don't miss another video, just like this one and now i want to dive straight in with the key information, so how market makers use payment for order flow to steal millions from apes. Each week too long didn't read: market makers like citadel use payment for order flow to steal, conservatively 7.2 million dollars a week from apes, and you should be more angry about it also buy and hold.

Not financial advice seems my working on and writing of. This has been quite aptly timid, as the us government just passed a bill that, among other things, will seek to limit market makers from running their orders, as i described below how effective this will be, will remain to be seen there he's referring to the committee passing Legislation on hr 4617, the order flow improvement act, this bill, directs the sec to study and consider banning or limiting the payment fraud to flow model in the form of exchange, rebates or payments from market centres to broker-dealers conflicts of interest based on pfof arrangements and the Impact of pfof on the quality of order execution because, as we already know, those market makers that pay for order flow, typically and most of the time, if not all the time, don't give their customers the best execution price. This means that those market makers could buy that order flow, that customers are placing amc orders for 38 dollars. A share.

The market maker like citadel, can go into the market and buy amc for 37 a share and sell it to us to 38. A share, therefore, making a dollar on each and every share, it's probably less than that, probably only a few pence or a few cents, but it still makes a big difference. A lot of those market makers also combine it with other shady tactics, such as trading in front of their customers anyway, back to the story, but don't ever be dissuaded that the new rules are pointless as every new rule filing and every change is another straw to Our metaphorical camel's back eventually, it will break, we all just have to be patient and keep digging away. So what is this due diligence? It's looking at payment for order flow and explaining how citadel virtue and other market makers use it to steal millions of dollars a week from retail and how it harms price discovery.

What is pfof simply put brokers want to get paid. There are lots of different ways to generate revenue. One of these ways is the payment for orderflow model payment for order flow is when the broker gets paid by market makers for the right to execute the orders. That's it not overly complicated so far, for example, let's focus on one ticker calling it abc.

The broker gets 10 buy, orders, then 10 sell orders, then five buy orders and then five sell orders. The broker gives these orders, along with the price type of order, etc. To the market maker, who gives money to the broker to do so, the market maker then exercises or executes the order simple. So why is that bad? For retail, on the face of it, it doesn't look like pfof is all that bad.

It allows brokers to offer cheap commission or commission free trades, but as with all things, the cost is hidden. Normally you get messed over on two sides. The first is in what is called best price execution. A broker has an obligation to get you the best price for your trade in a buy order.

That means the lowest price and for a sell order. That means the highest price with payment for order flow. That frequently doesn't happen. Often the market maker will use high frequency trading algorithms to go into the market and take advantage of the spread or the difference between the ask and the bid, prices and trade frequently amongst all the different exchanges and dark pools and non-ats's as well for them to Try and profit off of this.

Basically in all stocks, there's always a slight price disparity between the bid price and the ask price. So the ask price is 3805 and the bid is only 3801.. These high-frequency trades go in and often buy it at 3801 and try and sell it for 38.05, making small pennies of profit or small sense of profit here and there. How do market makers use pfof to scout pennies off of every trade? The second way pfos messes up retail, is the market makers also use pfof, along with dark pools to front run their orders and scout pennies off of every trade.

For example, if you place the buy order of abc for 10 shares at 10 a share, a total order of a hundred dollars. The market maker would then place their own buy order for ten shares worth a hundred dollars, or maybe they'll place it for nine dollars and 95 cents a share, as in 99 and 50 cents total order and because of use of dark pools this, along with their Super low latency computers will mean their order is fulfilled before yours is and because their order went through a dark pool, it won't affect the price, but because they then wrote your order for a public exchange. It does, although potentially they're also rooting your buy order through a dark pool or through a non-ats, and therefore it doesn't get impacted on the lit exchange price. In this case, your order increases the price to ten dollars and one cents a share.

You're then, given your shares, the market maker then sells their 10 shares on the public exchange and gets the market maker then sells their 10 shares on a public exchange to you and gets a hundred dollars and 10 cents for them. This pushes the price back down to ten dollars a share. It might not seem like a lot, but the market makers, ten cents profit is not your profit. Where do i get the fact that they steal millions a week from, as seen from the due diligence about citadel connect back in 2015, citadel only had 25 of the retail order flow and retail was smaller, then than it is now, and they were still trading.

72 million a day, we know that, from looking at the non-ats data published by finra, the 1.6 billion shares of amc were traded in may. If you divide that by 30 days, that means in just amc alone, 54 million shares were traded each and every day by citadel virtue and a few others also don't forget to extrapolate that for every single stock in the entire market, that's 54 million shares a day. In just amc alone, let alone every other share on the new york stock exchange and the nasdaq and every other exchange they handle. Even if it's only one cent of profit per share, they earn that's still 720 000 a day or 3.6 million dollars a week for 72 million shares.

Just for the 54 million shares in amc traded each day in may that's around 540 000 of profit a day or 2.7 million dollars of profit per week. Today we know they have 50 percent of retail order flow and that retail has a bigger presence. But i've not seen any data of how much bigger again it's around 54 million shares a day in just amc alone, let alone every other stock in the market. If we just double the number to represent citadel's increase in processing retail order flow, that's 7.2 million dollars of trading week citadel is stealing from retail screw those numbers, that's nearly 375 million dollars a year that should belong in retail and apes pockets and that's just citadel.

We aren't even factoring in virtue who currently process 25 or other market makers who process the remaining 25. What alternatives are there lots? Thankfully pfof is illegal in the uk and in canada and maybe the rest of europe, not 100 sure. Yet uk brokers can still offer cheap or free trades. One such model is the premium subscription model like free trade, uses where you pay 9.99 a month, just for some extra benefits or again 3.99 a month for other extra benefits whereby the standard user can buy or sell so many free trades a month.

But would then have to pay a commission above that, whereas a premium subscribed trader gets unlimited free trades, along with extra information and analysis tools with free trade. Specifically, a free user can get unlimited market orders, but if you're a premium subscriber, you also get unlimited limit. Orders another is the pricing of the account the likes of revolut, who charge pennies to have your account open each month. Based on how many shares you hold, there's also the good old, reliable charging for trades.

The days of the old-fashioned 12 pounds of trade are gone with even old-fashioned uk brokers having reduced their commission fees greatly. There are many other models and there will be new ones designed as well, but pfof is just bad for retail. In my opinion, as i noted in one of my other videos, the finance committee have so far passed hr 4617. Then it needs to go to the house then to the senate, and then it gets signed into law by the president.

Hopefully he can move through this journey fairly quickly. It did get through the house committee very, very fast, so hopefully the remaining steps don't take too long. I personally think this is a step in the right direction, but more work needs to be done to ensure that market makers can't profit from the retail traders in such a way like payment for order flow and trading ahead of their customers. I personally think the next logical step is to outlaw the use of dark pools and non-ats's so that each and every single transaction is impacted on the lit exchange price.

It shouldn't just be one rule for them and another rule for us making sure the sell orders impact on the late exchange price, but the buy orders magically, don't guys be sure to. Let me know down in the comments below what you think about market makers. Stealing millions of dollars each and every week from retail traders and apes, like you and i, and if you haven't already i'd, really consider joining the patreon and becoming part of the team so that you can get urgent updates about amc like this before i even make A video link in the description below and as always guys if you enjoyed this video, be sure to check out some of my others. Alternatively, subscribe to the channel and ding that notification bell, because that way, you'll be alerted.

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