Ken Griffin's Citadel is cashing in on the day-trading boom by buying customers' orders - Business Insider

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Reuters

Citadel Securities, the sister firm of billionaire Ken Griffin's hedge fund, has emerged as one of the big winners from the current day-trading boom.

Citadel is the leading retail market maker, handling 40% of the shares traded by individual investors in the US, the Financial Times reported on Monday, citing Piper Sandler data.

Read More: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' - and warns of an 'underwater' economy for the next several years

The firm purchases orders from the big US brokerages, takes the other side of the trades, and makes money on the spread - the difference between the price to buy and sell.

While Citadel is privately owned, its rival Virtu Financial reported a 267% year-on-year rise in market-making earnings from retail and institutional clients in the first quarter, the Financial Times said, giving a sense of Citadel's likely gains.

Virtu's exposure to the day-trading boom has also spurred investors to send its shares up about 50% this year.

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Retail investing has surged in recent months as people have been stuck at home during the coronavirus pandemic. Closed casinos and a lack of live sports have driven gamblers to the stock market, and the likes of Barstool Sports founder David Portnoy have championed trading as a form of entertainment. 

Easy access to zero-commission trading across platforms such as Charles Schwab, E-Trade, TD Ameritrade, and Robinhood has also boosted interest among amateur stockpickers.

However, day traders have piled into questionable stocks such as Hertz and JCPenney. Both companies have filed for bankruptcy, and stockholders are typically wiped out in bankruptcy proceedings.

Big-name investors and market commentators have called out the reckless behavior in recent weeks:

• Billionaire investor Leon Cooperman said some Robinhood traders are "doing stupid things" that will "end in tears."
• "Shark Tank" star Mark Cuban said the frenzy reminded him of the dot-com bubble.
• "Don't be misled with false claims of easy profits from day trading," Princeton economist and Wealthfront's investment chief Burton Malkiel warned last week.
• "Mad Money" host Jim Cramer bemoaned that "everybody thinks they're smarter than Warren Buffett."

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