Posted on 12/15/2008 6:25:20 AM PST by marshmallow
Bernie was a marketmaker for probably most NASDAQ stocks. His traders would make a market in the stock so when you would place your online trade, they would offer to sell you say 100 shares of Apple at $55.12. This is all in real time with thousands of trades often per minute.
5 years ago - His market making firm might buy your 100 shares at say 55 1/4 and quickly sell it for 55 3/8s. This is the spread and this is how his firm made money.
5 years ago decimalization came in and shares were quote in pennies like $55.03 versus $55 1/16. The spread shrunk a LOT and so did profitability.
This is when I think Bernie went bad unless he already was bad.
Ok frontrunning. Bernie’s traders could have seen 1,000 shares of Apple being bought at $55 1/4 and they jump in front and buy at $55 1/8. They could jump in the from of the line and buy or sell to make their clients money while SCREWING you and I placing trades online or anybody making a trade - could be Smith Barney. The practice is illegal. Bernie’s firm as marketmaker could see the “order flow” which is like getting a 20 second advanced video on a football game to allow you to adjust your team on the field. So on every transaction/trade Bernie could pick up an extra $100 or $1000 bucks on each trade.
His investing supposedly involved lots of trades. So if he was front running his clients might make $200 on a trade and you lost $200 on your online trade you made in Apple. Multiply this by say 10,000 trades a day and it adds up.
So many of his clients thought Bernie had this edge. A lot knew his edge was cheating. I think this is how it worked up to 5 years ago before prices went to pennies and the spreads vanished. He may have gone dirty about 5 years ago. He may have still been making say 5 to 6% a year on his strategy for the clients and paying out 11 to 15%. This still worked because most of his clients left their money in. In addition, more money was still coming in which is the key to a Ponzi scheme.
It’s hard to cheat an honest person.
Thanks for your insight.
Thanks. Not too many news stories are mentioning how Bernie’s clients thought Bernie had an edge. He was well known as a marketmaker in stocks.
I am not sure if he let on or if it was a wink and a nod but a lot of clients knew Bernie’s “edge” was front running or the idea that it was frontrunning.
You sound like a democrat. Again Madoff crapping away a bunch of rich DNC donors money is nothing but a pure joy to watch. HAHAHAHAHAHA
You cannot cheat an honest man.
I have a friend who a few months ago found out that a different POS had stolen the $250k they had invested with him. People who believe in someone and are wrong are not necessarily bad people. My friends are devastated, it was everything they had saved over the past 10 years of hard work. It was also a Ponzi scheme. The fact that they hoped for good returns does not mean that they deserved it.
That is demonstrably false.
looks like a lot of supposedly smart people were gaming the system. Hard to find much symphathy.
Thats because it is. I have no sympathy for these people.
These are not greedy sacks of crap, and most of them did not know that madof was doing things illegally. I think you actually have no idea what he was doing. Madof was taking the money from his investors, then sending them falsified reports of what he was doing with their investments. If they actually KNEW what he was doing, they would have pulled their money out immediately. So, these people ARE victims, and they DO deserve sympathy. The next time you want to provide commentary on a developing storyu, make sure you actually know what you are talking about before you post, otherwise (like right now) you look like an idiot.
Lost a bit of money, did you?
I have seen NOTHING in subsequent reporting regarding this issue which makes me change my mind about the “victims”. As I said, if it seems too good to be true (and his claimed returns on investments certainly seemed too good to be true) then it IS too good to be true.
Also, in the future, please limit your comments to stories which were posted sometime this year.
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