"Trading" Posts
The cash-ETF arbitrage

The cash-ETF arbitrage

The cash vs. ETF arbitrageThe creation & redemption process allows a trader (an authorized participant) to obtain or get rid of ETFs easily and at virtually no cost. From the composition, they can calculate the value of the ETF at any time with great accuracy. The...

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The revenge of the retail trader

The revenge of the retail trader

GameStop’s rally and its short squeeze are more than just market exuberance. Thanks to low-cost trading, employees working from home, and a Fed-induced market rally, retail traders are pushing the market to new highs and enjoying the excitement of the rally. Worse, social media allow them to focus on a few instruments, with wild rallies.
It is only a matter of time before this party is over, for this stock or the market. We should start thinking of the aftermath.

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A History of Daytrading: Regulators, Congress and Robinhood

A History of Daytrading: Regulators, Congress and Robinhood

More about Robinhood… Massachusetts’ Enforcement Division filed a complaint about
– its aggressive growth tactics,
– the firm’s outages and disruptions, which were well known and ignored while pushing growth,
– its gamification,
– and insufficient supervision for option trading.

Here is an excellent, albeit a bit lengthy, analysis of the history, regulatory and general situation of Robinhood & its Day Trading business by Bill Singer of Broke and Brokers (http://www.rrbdlaw.com/).

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Robinhood’s $65m SEC penalty and the ‘gamification’ of trading

Robinhood’s $65m SEC penalty and the ‘gamification’ of trading

Robinhood has just been fined $65m for overcharging its customers, despite trades being free of charge – the company sells its order flow, and the net result is that traders are overcharged $35m/y.

The firm also mislead its clients in its advertising.

But in the back of these already serious issues, is the question of ”gamification’ of trading, where inexperienced individuals actively day-trade on margin. They end-up facing professional investors, who are much better informed and equipped than them. A previous note (https://lnkd.in/gCjKwtM) showed that most if not all end-up losing money.

This five-year-old article below still remains a good analysis of what ‘gamification’ entails. It is probably fine for school teaching and corporate training, but feeding a “high-octane gambling need” is probably not ideal for financial markets.

Robinhood’s documented bubbles, coupled with many new accounts and likely overpriced markets, could turn pretty ugly pretty fast.

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Most Robinhood day traders lose money

Most Robinhood day traders lose money

Most day traders on Robinhood lose money. Actually, maybe 0.5% of day-traders earned more than the initial salary of a bank teller.

A large body of academic studies going back 20 years consistently shows day traders and other very active traders have difficulty making money over anything more than short periods of time.

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A terrible, horrible, no-good year for quants

A terrible, horrible, no-good year for quants

Quant hedge funds have had a bad year. One of their core factor, value, a staple of investment for many years, has strongly underperformed.

Quants rely on backtests to see what has performed / is performing well. In a changing universe, models naturally have short lifetimes as a result. In this covid world, the past really doesn’t reflect the future anymore, and many models do not work at all. Some quants have self-doubt on the validity of their approach (see the previous post on Inigo Fraser Jenkins).

It’s probably way too early to call for the demise of quant investing, but COVID surely brings a regime shift.

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France declares second national lockdown

France declares second national lockdown

No benefit in being alarmist, and there are far too many people talking about COVID than needed. But the markets remain ‘truth midwives”, and today’s market fall is explained by these points:
– The resurgence covid resurgence is much larger this Fall than it was in Spring.
– Europe (not just France), needs to re-instore solid prophylactic measures. There are now curfews in large French cities.
– While Europe is in a second wave, whose roots probably come from frustration and the abnormal strength of this virus, the US is still in its first wave. The recent US resurgence is only the virus reaching states, which it had not yet infected. There’s probably worse to come in the US.

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Previous Posts

Four-barrel gun

Archegos: the questions nobody asks

What happened at Archegos? A lot has been published already, but many critical questions have still not been asked. After a factual summary / press review, this article asks the missing critical questions.

Rogue, the new numps

“I’m going rogue”, claims the principal

Guy Gentile is a principal with a checkered past: pump-and-dump, lack of registration, soliciting US customers from the Bahamas… He’s not hiding that he went rogue.
He just got sued by the SEC for evading US stock trading regulations. Again.

Cannabis and Wall Street

Cannabis: Wild West meets Wall Street

The cannabis industry is growing up, getting sophisticated. Perceptions are changing, but regulations are inconsistent. The smart money has arrived.
Here are the regulatory, financial, and investment challenges, as well as the opportunities, driving this rapidly evolving market.

Fishing Fly

The Tesla and Bitcoin lures

Two articles coincide into a disappointing conclusion. The casino markets will lure a chunk of the stimulus money into bad investments.

Payday loans

Buy Now Pay Later, the new payday loans

Buy Now Pay Later (BNPL) is the new form of credit used by 1 in 3 US consumers, and growing at 40% per year. It’s the new payday loan business.

This report explains what BNPL is, who uses it, how much it grows, and what this business really is about. The review asks questions to ponder about this new funding business.

Unicorn meat v2

SPAC, off-the-shelf dream?

The blank check companies are raising billions in IPOs… but for how long? Here is the SPAC 101 manual: nature, popularity, ego crisis… and even options!

Compass

The SEC’s new priorities: climate, seniors, cryptos & fintechs

The SEC has released its new sets of priorities for 2021. Here they are. Climate & ESG risks, disclosures and policies will be the focus #1. Retail investors, seniors, retirement savors: Reg BI and Fiduciary Duty compliance Information Security & Operational...
Hammock over the emptiness

4.25% repo on 10Y and other volatility warnings

This week saw some really unusual moves, 10Y repo, intraday volatility, stock rotations, A harbinger of more volatility to come?

Old calendar

T+1 ?

Should US stocks settle T+1? The current T+2 settlement date is considered antiquated, and the Robinhood affair (gee, them again???) has relaunched the debate. Here is a review of the DTCC’s proposal, as well as an idea for derivatives traders.

classe dissipee

Adult supervision needed in the crypto trading rooms

The SEC and the NY AG are suing CoinSeed for lack of registrations and multiple other counts. That’s a cold shower for the crypto industry. Spoiler alert: adult supervision is needed.

Psychic crystal ball

Geode hedge fund, loses big on volatility bets during COVID

Geode handles $700 bn of Fidelity’s index tracking assets. Geode Diversified, the much smaller hedge fund business, took a 36% loss on COVID’s volatility rally. It is now getting the axe.

Navesink International March 2021 Newsletter

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