unfairness in trading ecosystem

Discussion in 'Trading' started by pinetboltz, Mar 15, 2019.

  1. pinetboltz


    over these past few days it seemed like the college bribing scandal was reported everywhere, & ppl generally seemed 'outraged' at what was probably an open secret in some circles

    i remember reading one of the reports and they cited the capuchin fruit study as an analogy to how anger at unfairness is seen with other primates as well, lol. apparently the capuchins got super angry/ completely went ballistic when they saw others getting juicy, succulent grapes instead of some tasteless bit of cucumber.

    maybe it just strikes a nerve, evolutionarily speaking, to see the brazen unfairness out there in the open

    but then i would argue that in the trading ecosystem, there are also instances of unfairness that have been swept under the rug. this is not talking about the secret quant formula/ hush-hush proprietary algo type of 'edge', but more along the lines of unfair built-in issues that favor some in the game w/o necessarily being correlated to skills in the game, eg:

    - certain brokers charging different margin rates for different customers, also the practice of changing margins at very short notice. maybe the more unscrupulous ones would have incentive to do this to shake ppl out of positions

    - restriction of eligibility to buy private placements to certain individuals, eg. i'm sure most of us would have recognized the potential of facebook, uber, airbnb if presented with the chance to invest in them early, but for the most part these few companies' shares haven't been/wouldn't be made available to the public until their IPOs at sky-high valuations, which is pretty much the time for insiders/early stage private investors to cash out their winnings at 100-10000x return on their initial investments. i mean, according to some reports, Peter Thiel made like $1 billion on an initial $500k investment in FB. I'm sure if the investment opportunity wasn't restricted to a few family offices at that time most of us would have invested - totally landscape changing, stratospheric addictive growth, advertising cash flow like the search engines, no legit competition. At that rate of return, every 10k would have turned into $20m cash at IPO. Pretty solid for those who got hold of the early private shares. probably on the same scale for uber, airbnb, etc -- it's not so much as the skills in investing that makes a difference in those, but rather the opportunity to even access their shares early on before the huge capital appreciation. comparatively speaking, what happens to those shares after ipo are like small blips/ the skin of the orange compared to the juicy pulp that already been squeezed out
    CSEtrader likes this.
  2. ElCubano


    Actually, FB if I recall correctly could have been purchased for a nice period of time below its ipo price. At $18. Don’t know what price pre may have been.
  3. speedo


    You have to play the hand you're dealt. There's no crying in trading.
    Nobert likes this.
  4. Overnight


    Is there crying in trading balls? (Baseballs I mean!)
  5. For every successful ipo like fb, there are 100 more unsuccessful ipo (MySpace, GoPro, Groupon, etc.)
    beginner66, CSEtrader and comagnum like this.
  6. pinetboltz


    i think it still depends on when/what price people got in with the private shares though

    like when they call an ipo 'unsuccessful', my impression is they mean it as euphemism to the 'bagholders' who were stuck with the shares after they bought from retail bank like 3 days before public trading & paid through the nose for stock that didn't generate a pop like they expected

    probably the true private investors already cashed out part of their holdings at their point, those guys would have 'entry price' during early rounds that were prob. much lower than the valuations immediately before the technical date of ipo

    i mean even for facebook there was a whole 'outraged incident' too from some who bought at high price immediately before ipo before the thing tanked (relatively speaking), but that's only for those who bought literally right before they were listed on nasdaq. for the early investors who invested nowhere close the ipo price, it was perhaps only the difference between 2000x or 2500x their initial investment for them, so got rich(er) either way
  7. speedo


    Fun movie
    Last edited: Mar 15, 2019
  8. @pinetboltz

    You do not understand the IPO process. The scenarios you are theorizing about for an IPO can not happen without disclosure through public filings. Once the IPO is registered, the "underwriting syndicate" literally controls and is accountable for all shares and share structure, pre IPO and post IPO until the issue is deemed stable from the underwriting point of view.

    Additionally, while I am not versed on the FB IPO specifically, I know the "lock-up" period(s) for selling shareholders (ie existing shareholders, that means PRE-IPO shareholders) was in effect.
    #10     Mar 15, 2019
    speedo likes this.