The Antisocial Network by Ben Mezrich

Author:Ben Mezrich
Language: eng
Format: epub
Publisher: Grand Central Publishing
Published: 2021-09-07T00:00:00+00:00

Left had further added, in a video posted to YouTube, that “he’d never seen such an exchange of ideas of people so angry about someone joining the other side of a trade.”

Clearly, what was going on with GameStop wasn’t normal, and in decades on Wall Street, Jim had never seen anything quite like it before. No doubt, the emotional component of what was happening fed into the chaos he was seeing on the clearing side of the equation; the volumes, the volatility—all of it represented abnormal trading patterns, because the trading going on was being powered by abnormal trading motives. Markets were supposed to be rational—but there was nothing rational about people who loved a stock so much, they’d harass the family of someone on the other side of the trade.

Still, despite the strangeness of the market and the chaos in the stock, Jim felt certain that on the clearing side, everything was under control. The automated systems had kicked in as they were supposed to; for several weeks already, his systems had raised the margin requirements surrounding GameStop to take some of the risk out of the equation. As things started to get crazy, you could still buy GameStop on margin at Robinhood, but only at 50 percent of the usual rate. Eventually, that number would change to 100 percent—meaning buying GameStop on margin would no longer be possible. This sort of control might upset some customers, but it wasn’t just to protect Robinhood’s deposit requirements—which were partially based on risk profiles of trades—but also to protect the customers themselves.

Jim believed a large part of his duties were to watch out for those customers—Robinhood’s users. Commission-free trades and zero account requirements were only part of the picture; payment for order flow, as much as it benefitted Robinhood, also led to even more cost savings to the customers, because the trades flowed through market makers who were constantly looking for the best and most efficient settlements. That was why the majority of Robinhood’s trades flowed through Citadel, the massive Chicago-based financial firm founded by Ken Griffin, who now handled 40 percent of all retail trades, precisely because they were the best at what they did. Through Citadel, Robinhood’s PFOF strategy had saved its customers $1 billion in the past year alone, by finding the best bids and offers and completing them the most efficient way.

Of course, the ins and outs of PFOF were as complicated as the minutiae involved in clearing. The bottom line was, Jim and Robinhood were determined to keep their retail traders happy and safe. Sometimes, this meant leaning hard in one direction or the other. As long as the volatility in GameStop continued, efforts like limiting margin trades would have to be made. Though some users might find it constraining, sometimes a bit of constraint was for everyone’s own good.

Minutes later, when the market finally closed for the day, Jim turned his attention back to the computer on his desk. GameStop’s price chart took up most of the screen, and it really was impressive.

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