TBT – What did you learn from “The Robin Hood Affair?”

Under all is the DATA
What have you learned from “The Robin Hood Affair?”
Can this tainted episode teach us anything about the real estate business models we see that look like they cannot possibly be profitable?
As a onetime securities broker (Series 7 and 24) who charged fees for trades, I have often wondered how the stock trading platforms make money when they allow clients to trade stocks and bond for free. At the push of a button, at the speed of light, securities can be bought and sold at no expense to the buyer or seller. How can this be?
How do they these Security Brokerage platforms make money?
What is their Business Model?
There are several important lessons for the real estate industry to take from this incident, and one of those lessons can be summarized by:
Under all is the Data…
The value of the behavioral data surrounding individual’s stock trading habits, at scale, is becoming apparent with the Robin Hood Affair.
How does Robin Hood make money?
A number of ways, including selling access to its order flow (trade information about the transactions of its customers), to third parties). The trades are executed by those third parties, who also get access to the data…and that is a big part of the payoff for the platform brokerages that allow people to trade securities at no cost.
The fact is, there is a cost, your data.
Your data (and everyone else who utilizes the Robin Hood Platform) is very valuable to high frequency traders and hedge funds. It gives them insights into the direction of the market, and that is important if you are betting on an up, or down market. Traders can make money in both directions.
So why did Robin Hood stop trading on Gamestop?
Some of Robin Hood’s biggest customers, hedge funds that purchase access to its data (order flow), were betting that the stock would drop (selling short), but instead, the stock of Gamestop continued to climb because the stock was growing at an incredible rate (thanks to Reddit). Some of Robin Hood’s big hedge fund customers were losing billions.
How do you stop a stock from going up in price?
Don’t let people buy it. And that is what Robin Hood did yesterday. It halted trading, some speculate at the behest of its big hedge fund customers.
Selling data is very common on the Internet. If you think about it, Facebook is free. But is it? Think of all of the data Facebook has about you that would be valuable to Facebook’s other customers, the advertisers.
Access to trade flow data helps the hedge funds make billions. The costs of the trades themselves are inconsequential, when compared to the upside of trading with knowledge no one else has.
Order flow data has immense value…in securities and real estate. Some securities entities are profiting from the sale of access to data…and so are some of the companies in the real estate industry. Are you getting your money’s worth for access to your data?
One of my favorite TV shows when I was very young was Robin Hood (1955). Take from the corrupt rich (the Sheriff of Nottingham), and give to the poor. What a concept. It seems that today’s Robin Hood may be just the opposite.
Some of you will remember this. Listen to the theme song. It brought back memories for me. I still remember all of the words 😊

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