gamestop, games, and more...these hearings make me squirm. I cannot believe some of these guys have jobs to look into these issues. there is a huge amount of misunderstanding of trading, clearing, and more.

i want to give a certain perspective on what happened having spent some small amount of time at both Citadel and Goldman (and this is just to give a lens, not to force an opinion on anyone)

payment for order flow is a real thing, but in fact it's interesting to think about why it happens. when you are a big market maker, there are two classes of customers. huge institutions, and retail investors.

from the perspective of a big market maker, the retail guys are losers and big institutions we are scared of. think of the excellent showtime show "billions."

there is no question that the huge institutions / hedge funds have resources and "inside" access. all of us knew that in the big firms we work at. retail guys, have no access, just arrogance in what they think they know and can bet on, but they're almost always wrong.

i have friends who know nothing about companies and finance and yet they think they are geniuses trading options. those are the sort of types of customers market makers love to take in.

it's like gambling. the casinos love the people who think they can beat them in blackjack or roulette. it's obviously wrong, but the smaller the customer and the more arrogant they are, the better.

so payment for order flow was this faustian bargain. if you are a market maker, and you know the person you are trading with is a retail, small customer, then you are actually willing to give them a better bid or ask than you otherwise will

so it actually ends up being a better price for the retail investor. because the institution knows you are a small fry and have no "edge" on the trade. but if you are so committed to trading then why not give you a better price?

on the other hand, if you are dealing with a 20 billion dollar hedge fund who is known to be smart, resourced, or "inside", then you are not going to give them that price at all. because you only have to assume, as a market maker, that they know something you do not

so are two prices a real thing? yes. because if i assume you know nothing about the future of a stock, I will give you a discount. if you are a billionaire hedge fund manager, I will assume the worst and in fact give you a much worse price (if i trade with you at all)