Gamestonk
Jan 27, 2021 20:14 · 381 words · 2 minute read
I’ve followed the news about Gamestop ($GME) the last days and find it quite interesting how an army of retail investors can manipulate/influence a stock to such a degree and therefore force a short squeeze.
One of the more interesting aspects for me was the following tweetstorm about how Citadel - a multinational hedge fund - is profiting from all of it. While the redditors of r/WallStreetBets are fighting the big players…
For any people/journalists trying to understand the $GME situation, read this top post from /r/WallStreetBets. It explains, very well, what is happening & why. pic.twitter.com/xfZKMuRL5L
— William LeGate (@williamlegate) January 26, 2021
… their influx is making some of the big players even bigger/richer.
Step 0: Citadel pays Robinhood for order flow. Citadel gets to see RH's orders a few milliseconds before they're filled. Citadel may choose to front-run some of those trades.
— Toxic (@toxic) January 26, 2021
Step 1: RH's customers and WallStreetBets start manipulating $GME. This is happening in the open.
Step 2: HFTs buy shares ahead of Robinhood users.
— Toxic (@toxic) January 26, 2021
Remember Citadel, the firm who can front-run robinhood trades, and got to see all of that RH data a little early because they paid for flow? Yeah. When do you think they started buying $GME in front of RH traders on momentum?
Step 3: A hedge fund becomes insolvent. Today it was Melvin Capital Management. It very likely won't be the last.
— Toxic (@toxic) January 26, 2021
Melvin immediately sells off a portion of itself, because it needs the influx of cash or it will vanish in a poof of smoke, vaporizing ~$15 Billion in the process.
Step 5: Citadel still has access to RH order flows, is still allowed to front-run them and/or pocket the spread, and can use that and other information to determine the next over-leveraged fund that's going to get squeezed.
— Toxic (@toxic) January 26, 2021
They might even be able to accelerate the squeeze.
I’m curious where all of this will lead. Will r/WallStreetBets try to replicate it on other stocks which are heavily shorted (as they are already discussing, see $AMC)? Trading halted due to an SEC decision? Further restrictions for the stock market or additional rules for the Robinhood trading app?