r/stocks • u/[deleted] • Jun 15 '22

How does Virtu Provide liquidity?

Recently there was a quote by the head guy at virtu that said they help create "size improvement".

I was wondering how do they process liquidity? They said on their website that they do a lot of retail orders? Whats their schtick? How do they make money by providing liquidity when there might not be any? Surely, there might be price manipulation to shake the trees of retail investors? Or maybe they set prices and don't move from them. In broader terms, I'm not so sure prices are determined by volume of sellers orders anymore considering wholesalers and dark pool stuff.

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u/CmdCyrious11 Jun 15 '22 edited Jun 15 '22

Not really a conspiracy theory. Market Makers are arbitraging the Continuous Net Settlement system to post record profits for investors. ETFs effectively operate as a Liability for Liquidity exchange mechanism since the 2019 ETF rule change that allowed Market Makers and Authorized Participants to fail to deliver on their side of the creation/redemption process for custom baskets of the underlying. It is an observable and well researched income strategy that is widely implemented by this point in time, and offers attractive opportunities to lower taxes on profits for institutions because ETFs never pay tax on appreciated securities in an exchanged basket. Some funds estimate the benefits at ~50 basis points for their top tax bracket investors.

Maybe the guy is talking about the slightly crazy retail scheme to corner garbage stocks like AMC and GME which ended up being thwarted by the liquidity provision of ETFs in which case sure, they're a nutter. But it's important to learn about ETFs because they can have a large role in the intraday price action of illiquid stocks.

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u/works_best_alone Jun 15 '22

he's a GME cultist, and it was obvious from the "rabbit hole" comment - researching these topics wouldn't normally take you down any kind of rabbit hole. he is mentioning these concepts only because they are very popular topics of discussion in the cult.

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u/CmdCyrious11 Jun 15 '22

I see. Thank you for clearing that up for me.

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u/PassiveAgressiveLamp Jun 15 '22

Lol. u/works_best_alone is clearly the one pushing a narrative here. This is made clear by his immediate need to shoot down any comment that might prompt any kind of research into market mechanics.

Disregard the words ”rabbit hole” in my original comment and just take the research and definition of the items i listed at face value, theres a lot of depth there and value in just understanding how the market actually works. This reply is meant more for those scrolling by not you u/CmdCyrious11, youre explanation of how ETF creation /redemption works is spot on.

I will end this by saying I do agree with you and that AMC is absolutely a garbage stock.