Patrick McConlogue, an ex-Citadel Data Scientist said during the ‘meme stock’ frenzy that the stock market is rigged, claiming he helped design it.
“The game is not fair and it never has been. Individual investors, even when operating in a swarm, are destined to lose. How do I know? I helped design the game.”
Not many investors know this, but Patrick actually breaks down how Citadel and other hedge funds were able to make billions back in only weeks from halts.
In this article, I’m going to share his words and knowledge in the industry directly with you.
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Ex-Citadel Employee Reveals Rigged Trading Game
Patrick McConlogue appeared on Fox Business during the ‘meme stock’ frenzy of 2021 when retail investors created one of the biggest scares in Wall Street history.
GameStop and AMC shareholders were able to create panic on Wall Street by heavily buying shares of the overleveraged shorted stocks.
As share prices soared, short sellers experienced massive losses.
GameStop was able to put Melvin Capital out of business, but Patrick McConlogue says other hedge funds were able to make back billions in losses during the halt.
The halts allowed hedge funds to enter AMC and GameStop knowing shares would plummet, allowing them to capitalize on the deflation of the price.
Patrick says the rules of the game also heavily favor hedge funds, something retail investors have urged SEC Chairman Gary Gensler for years to change.
“I respect many of my colleagues, the problem isn’t the people, it’s the rules of the game which heavily favor the funds.”
Below is ex-Citadel Data Scientist Patrick McConlogue’s story.
Related: Citadel, Charles Schwab Team Up to Destroy SEC Proposals
Patrick McConlogue Says the Stock Market is Rigged
“The game is not fair and it never has been. Individual investors, even when operating in a swarm, are destined to lose.
How do I know? I helped design the game.
A few years ago, I worked at the massive hedge fund Citadel. The multi-billion dollar fund was caught up in this week’s scandal for bailing out hedge fund Melvin Capital after everyday traders on Robinhood appeared close to liquidating the fund through mass buying of the GameStop stock $GME.
My role at Citadel was as an engineer in Long Term Quantitative Strategies. The entire department, filled with programmers and compliance officers, is dedicated to something called ‘alpha’ which determines the buying strategy of the fund.
I was responsible for innovative proprietary technology that capitalizes on public data faster than any other hedge fund. It’s a classic situation of machines against humans. I respect many of my colleagues, the problem isn’t the people, it’s the rules of the game which heavily favor the funds.
A group of traders on the r/WallStreetBets Reddit thread, now consisting of over 8.6M members, noticed that someone had overly “shorted” the GameStop $GME stock.
They decided it was the perfect time to buy. It was only around $18 per share and easily affordable for the common investor who kept buying, driving up the price of the stock.
As the buying frenzy continued the hedge funds who had taken the opposite position started to hemorrhage money.. BIG money.
The small investors celebrated their success online as news broke that the hedge fund Melvin Capital Management had lost so much on the $GME short position that they had to be bailed out by bigger hedge funds.
While the markets were closed Melvin Capital’s sinking battleship received an emergency infusion of $2.75 billion from Citadel and Point72.”
‘Meme Stock’ Halts
“On Thursday morning, Robinhood — the commission-free stock trading app used by small investors — suddenly shut down buys on $GME and a few other stocks that were under siege.
Only sell orders went through, reversing the trend, driving the stock prices back down and shoring up the hedge funds’ sinking ships. Remember, when the stock price goes down, the people who hold the “shorts” make money.
This started a chain reaction. Other retail trading platforms like E*Trade and TD AmeriTrade began freezing the stock for individual investors. But hedge funds own supercomputers.
They have direct access to stock markets. While small investors were frozen the hedge funds traded massive positions and quickly earned back the billions in losses from the past few days.
The rules of the game had been exposed, in broad daylight no less.
Robinhood users, when signing up for the popular trading app that offered “free trading” were likely unaware of their role in the hedge funds’ ability to reap huge profits.
The system is broken.”
Patrick McConlogue left Citadel for decentralized finance and co-founded a new technology called Overline that takes the philosophy of DeFi to the extreme.
Not only is Overline unable to freeze any of your assets but it can’t even turn off the exchange; it’s not possible.
You can read Patrick’s full write-up here.
Related: Ken Griffin Thanks Redditors for ‘Meme Stocks’
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