How Payment for Order Flow (PFOF) Works
What is PFOF?
PFOF is a brokerage firm's compensation for directing orders to different parties for trade execution. The brokerage firm receives fractions of a penny per share for directing the order to a market maker.
Each optionable stock could have thousands of contracts, so market makers dominate options trades. Order flow payments average less than $0.50 per option contract.
Order Flow Payments (PFOF) Explained
The proliferation of exchanges and electronic communication networks has complicated equity and options trading (ECNs) Ironically, Bernard Madoff, the Ponzi schemer, pioneered pay-for-order-flow.
In a December 2000 study on PFOF, the SEC said, "Payment for order flow is a method of transferring trading profits from market making to brokers who route customer orders to specialists for execution."
Given the complexity of trading thousands of stocks on multiple exchanges, market making has grown. Market makers are large firms that specialize in a set of stocks and options, maintaining an inventory of shares and contracts for buyers and sellers. Market makers are paid the bid-ask spread. Spreads have narrowed since 2001, when exchanges switched to decimals. A market maker's ability to play both sides of trades is key to profitability.
Benefits, requirements
A broker receives fees from a third party for order flow, sometimes without a client's knowledge. This invites conflicts of interest and criticism. Regulation NMS from 2005 requires brokers to disclose their policies and financial relationships with market makers.
Your broker must tell you if it's paid to send your orders to specific parties. This must be done at account opening and annually. The firm must disclose whether it participates in payment-for-order-flow and, upon request, every paid order. Brokerage clients can request payment data on specific transactions, but the response takes weeks.
Order flow payments save money. Smaller brokerage firms can benefit from routing orders through market makers and getting paid. This allows brokerage firms to send their orders to another firm to be executed with other orders, reducing costs. The market maker or exchange benefits from additional share volume, so it pays brokerage firms to direct traffic.
Retail investors, who lack bargaining power, may benefit from order-filling competition. Arrangements to steer the business in one direction invite wrongdoing, which can erode investor confidence in financial markets and their players.
Pay-for-order-flow criticism
It has always been controversial. Several firms offering zero-commission trades in the late 1990s routed orders to untrustworthy market makers. During the end of fractional pricing, the smallest stock spread was $0.125. Options spreads widened. Traders found that some of their "free" trades cost them a lot because they weren't getting the best price.
The SEC then studied the issue, focusing on options trades, and nearly decided to ban PFOF. The proliferation of options exchanges narrowed spreads because there was more competition for executing orders. Options market makers said their services provided liquidity. In its conclusion, the report said, "While increased multiple-listing produced immediate economic benefits to investors in the form of narrower quotes and effective spreads, these improvements have been muted with the spread of payment for order flow and internalization."
The SEC allowed payment for order flow to continue to prevent exchanges from gaining monopoly power. What would happen to trades if the practice was outlawed was also unclear. SEC requires brokers to disclose financial arrangements with market makers. Since then, the SEC has watched closely.
2020 Order Flow Payment
Rule 605 and Rule 606 show execution quality and order flow payment statistics on a broker's website. Despite being required by the SEC, these reports can be hard to find. The SEC mandated these reports in 2005, but the format and reporting requirements have changed over the years, most recently in 2018.
Brokers and market makers formed a working group with the Financial Information Forum (FIF) to standardize order execution quality reporting. Only one retail brokerage (Fidelity) and one market maker remain (Two Sigma Securities). FIF notes that the 605/606 reports "do not provide the level of information that allows a retail investor to gauge how well a broker-dealer fills a retail order compared to the NBBO (national best bid or offer’) at the time the order was received by the executing broker-dealer."
In the first quarter of 2020, Rule 606 reporting changed to require brokers to report net payments from market makers for S&P 500 and non-S&P 500 equity trades and options trades. Brokers must disclose payment rates per 100 shares by order type (market orders, marketable limit orders, non-marketable limit orders, and other orders).
Richard Repetto, Managing Director of New York-based Piper Sandler & Co., publishes a report on Rule 606 broker reports. Repetto focused on Charles Schwab, TD Ameritrade, E-TRADE, and Robinhood in Q2 2020. Repetto reported that payment for order flow was higher in the second quarter than the first due to increased trading activity, and that options paid more than equities.
Repetto says PFOF contributions rose overall. Schwab has the lowest options rates, while TD Ameritrade and Robinhood have the highest. Robinhood had the highest equity rating. Repetto assumes Robinhood's ability to charge higher PFOF reflects their order flow profitability and that they receive a fixed rate per spread (vs. a fixed rate per share by the other brokers).
Robinhood's PFOF in equities and options grew the most quarter-over-quarter of the four brokers Piper Sandler analyzed, as did their implied volumes. All four brokers saw higher PFOF rates.
TD Ameritrade took the biggest income hit when cutting trading commissions in fall 2019, and this report shows they're trying to make up the shortfall by routing orders for additional PFOF. Robinhood refuses to disclose trading statistics using the same metrics as the rest of the industry, offering only a vague explanation on their website.
Summary
Payment for order flow has become a major source of revenue as brokers offer no-commission equity (stock and ETF) orders. For retail investors, payment for order flow poses a problem because the brokerage may route orders to a market maker for its own benefit, not the investor's.
Infrequent or small-volume traders may not notice their broker's PFOF practices. Frequent traders and those who trade larger quantities should learn about their broker's order routing system to ensure they're not losing out on price improvement due to a broker prioritizing payment for order flow.
This post is a summary. Read full article here
More on Economics & Investing
Liam Vaughan
3 years ago
Investors can bet big on almost anything on a new prediction market.
Kalshi allows five-figure bets on the Grammys, the next Covid wave, and future SEC commissioners. Worst-case scenario
On Election Day 2020, two young entrepreneurs received a call from the CFTC chairman. Luana Lopes Lara and Tarek Mansour spent 18 months trying to start a new type of financial exchange. Instead of betting on stock prices or commodity futures, people could trade instruments tied to real-world events, such as legislation, the weather, or the Oscar winner.
Heath Tarbert, a Trump appointee, shouted "Congratulations." "You're competing with 1840s-era markets. I'm sure you'll become a powerhouse too."
Companies had tried to introduce similar event markets in the US for years, but Tarbert's agency, the CFTC, said no, arguing they were gambling and prone to cheating. Now the agency has reversed course, approving two 24-year-olds who will have first-mover advantage in what could become a huge new asset class. Kalshi Inc. raised $30 million from venture capitalists within weeks of Tarbert's call, his representative says. Mansour, 26, believes this will be bigger than crypto.
Anyone who's read The Wisdom of Crowds knows prediction markets' potential. Well-designed markets can help draw out knowledge from disparate groups, and research shows that when money is at stake, people make better predictions. Lopes Lara calls it a "bullshit tax." That's why Google, Microsoft, and even the US Department of Defense use prediction markets internally to guide decisions, and why university-linked political betting sites like PredictIt sometimes outperform polls.
Regulators feared Wall Street-scale trading would encourage investors to manipulate reality. If the stakes are high enough, traders could pressure congressional staffers to stall a bill or bet on whether Kanye West's new album will drop this week. When Lopes Lara and Mansour pitched the CFTC, senior regulators raised these issues. Politically appointed commissioners overruled their concerns, and one later joined Kalshi's board.
Will Kanye’s new album come out next week? Yes or no?
Kalshi's victory was due more to lobbying and legal wrangling than to Silicon Valley-style innovation. Lopes Lara and Mansour didn't invent anything; they changed a well-established concept's governance. The result could usher in a new era of market-based enlightenment or push Wall Street's destructive tendencies into the real world.
If Kalshi's founders lacked experience to bolster their CFTC application, they had comical youth success. Lopes Lara studied ballet at the Brazilian Bolshoi before coming to the US. Mansour won France's math Olympiad. They bonded over their work ethic in an MIT computer science class.
Lopes Lara had the idea for Kalshi while interning at a New York hedge fund. When the traders around her weren't working, she noticed they were betting on the news: Would Apple hit a trillion dollars? Kylie Jenner? "It was anything," she says.
Are mortgage rates going up? Yes or no?
Mansour saw the business potential when Lopes Lara suggested it. He interned at Goldman Sachs Group Inc., helping investors prepare for the UK leaving the EU. Goldman sold clients complex stock-and-derivative combinations. As he discussed it with Lopes Lara, they agreed that investors should hedge their risk by betting on Brexit itself rather than an imperfect proxy.
Lopes Lara and Mansour hypothesized how a marketplace might work. They settled on a "event contract," a binary-outcome instrument like "Will inflation hit 5% by the end of the month?" The contract would settle at $1 (if the event happened) or zero (if it didn't), but its price would fluctuate based on market sentiment. After a good debate, a politician's election odds may rise from 50 to 55. Kalshi would charge a commission on every trade and sell data to traders, political campaigns, businesses, and others.
In October 2018, five months after graduation, the pair flew to California to compete in a hackathon for wannabe tech founders organized by the Silicon Valley incubator Y Combinator. They built a website in a day and a night and presented it to entrepreneurs the next day. Their prototype barely worked, but they won a three-month mentorship program and $150,000. Michael Seibel, managing director of Y Combinator, said of their idea, "I had to take a chance!"
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Seibel's skepticism was rooted in America's historical wariness of gambling. Roulette, poker, and other online casino games are largely illegal, and sports betting was only legal in a few states until May 2018. Kalshi as a risk-hedging platform rather than a bookmaker seemed like a good idea, but convincing the CFTC wouldn't be easy. In 2012, the CFTC said trading on politics had no "economic purpose" and was "contrary to the public interest."
Lopes Lara and Mansour cold-called 60 Googled lawyers during their time at Y Combinator. Everyone advised quitting. Mansour recalls the pain. Jeff Bandman, a former CFTC official, helped them navigate the agency and its characters.
When they weren’t busy trying to recruit lawyers, Lopes Lara and Mansour were meeting early-stage investors. Alfred Lin of Sequoia Capital Operations LLC backed Airbnb, DoorDash, and Uber Technologies. Lin told the founders their idea could capitalize on retail trading and challenge how the financial world manages risk. "Come back with regulatory approval," he said.
In the US, even small bets on most events were once illegal. Under the Commodity Exchange Act, the CFTC can stop exchanges from listing contracts relating to "terrorism, assassination, war" and "gaming" if they are "contrary to the public interest," which was often the case.
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In 1988, as academic interest in the field grew, the agency allowed the University of Iowa to set up a prediction market for research purposes, as long as it didn't make a profit or advertise and limited bets to $500. PredictIt, the biggest and best-known political betting platform in the US, also got an exemption thanks to an association with Victoria University of Wellington in New Zealand. Today, it's a sprawling marketplace with its own subculture and lingo. PredictIt users call it "Rules Cuck Panther" when they lose on a technicality. Major news outlets cite PredictIt's odds on Discord and the Star Spangled Gamblers podcast.
CFTC limits PredictIt bets to $850. To keep traders happy, PredictIt will often run multiple variations of the same question, listing separate contracts for two dozen Democratic primary candidates, for example. A trader could have more than $10,000 riding on a single outcome. Some of the site's traders are current or former campaign staffers who can answer questions like "How many tweets will Donald Trump post from Nov. 20 to 27?" and "When will Anthony Scaramucci's role as White House communications director end?"
According to PredictIt co-founder John Phillips, politicians help explain the site's accuracy. "Prediction markets work well and are accurate because they attract people with superior information," he said in a 2016 podcast. “In the financial stock market, it’s called inside information.”
Will Build Back Better pass? Yes or no?
Trading on nonpublic information is illegal outside of academia, which presented a dilemma for Lopes Lara and Mansour. Kalshi's forecasts needed to be accurate. Kalshi must eliminate insider trading as a regulated entity. Lopes Lara and Mansour wanted to build a high-stakes PredictIt without the anarchy or blurred legal lines—a "New York Stock Exchange for Events." First, they had to convince regulators event trading was safe.
When Lopes Lara and Mansour approached the CFTC in the spring of 2019, some officials in the Division of Market Oversight were skeptical, according to interviews with people involved in the process. For all Kalshi's talk of revolutionizing finance, this was just a turbocharged version of something that had been rejected before.
The DMO couldn't see the big picture. The staff review was supposed to ensure Kalshi could complete a checklist, "23 Core Principles of a Designated Contract Market," which included keeping good records and having enough money. The five commissioners decide. With Trump as president, three of them were ideologically pro-market.
Lopes Lara, Mansour, and their lawyer Bandman, an ex-CFTC official, answered the DMO's questions while lobbying the commissioners on Zoom about the potential of event markets to mitigate risks and make better decisions. Before each meeting, they would write a script and memorize it word for word.
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Several prediction markets that hadn't sought regulatory approval bolstered Kalshi's case. Polymarket let customers bet hundreds of thousands of dollars anonymously using cryptocurrencies, making it hard to track. Augur, which facilitates private wagers between parties using blockchain, couldn't regulate bets and hadn't stopped users from betting on assassinations. Kalshi, by comparison, argued it was doing everything right. (The CFTC fined Polymarket $1.4 million for operating an unlicensed exchange in January 2022. Polymarket says it's now compliant and excited to pioneer smart contract-based financial solutions with regulators.
Kalshi was approved unanimously despite some DMO members' concerns about event contracts' riskiness. "Once they check all the boxes, they're in," says a CFTC insider.
Three months after CFTC approval, Kalshi announced funding from Sequoia, Charles Schwab, and Henry Kravis. Sequoia's Lin, who joined the board, said Tarek, Luana, and team created a new way to invest and engage with the world.
The CFTC hadn't asked what markets the exchange planned to run since. After approval, Lopes Lara and Mansour had the momentum. Kalshi's March list of 30 proposed contracts caused chaos at the DMO. The division handles exchanges that create two or three new markets a year. Kalshi’s business model called for new ones practically every day.
Uncontroversial proposals included weather and GDP questions. Others, on the initial list and later, were concerning. DMO officials feared Covid-19 contracts amounted to gambling on human suffering, which is why war and terrorism markets are banned. (Similar logic doomed ex-admiral John Poindexter's Policy Analysis Market, a Bush-era plan to uncover intelligence by having security analysts bet on Middle East events.) Regulators didn't see how predicting the Grammy winners was different from betting on the Patriots to win the Super Bowl. Who, other than John Legend, would need to hedge the best R&B album winner?
Event contracts raised new questions for the DMO's product review team. Regulators could block gaming contracts that weren't in the public interest under the Commodity Exchange Act, but no one had defined gaming. It was unclear whether the CFTC had a right or an obligation to consider whether a contract was in the public interest. How was it to determine public interest? Another person familiar with the CFTC review says, "It was a mess." The agency didn't comment.
CFTC staff feared some event contracts could be cheated. Kalshi wanted to run a bee-endangerment market. The DMO pushed back, saying it saw two problems symptomatic of the asset class: traders could press government officials for information, and officials could delay adding the insects to the list to cash in.
The idea that traders might manipulate prediction markets wasn't paranoid. In 2013, academics David Rothschild and Rajiv Sethi found that an unidentified party lost $7 million buying Mitt Romney contracts on Intrade, a now-defunct, unlicensed Irish platform, in the runup to the 2012 election. The authors speculated that the trader, whom they dubbed the “Romney Whale,” may have been looking to boost morale and keep donations coming in.
Kalshi said manipulation and insider trading are risks for any market. It built a surveillance system and said it would hire a team to monitor it. "People trade on events all the time—they just use options and other instruments. This brings everything into the open, Mansour says. Kalshi didn't include election contracts, a red line for CFTC Democrats.
Lopes Lara and Mansour were ready to launch kalshi.com that summer, but the DMO blocked them. Product reviewers were frustrated by spending half their time on an exchange that represented a tiny portion of the derivatives market. Lopes Lara and Mansour pressed politically appointed commissioners during the impasse.
Tarbert, the chairman, had moved on, but Kalshi found a new supporter in Republican Brian Quintenz, a crypto-loving former hedge fund manager. He was unmoved by the DMO's concerns, arguing that speculation on Kalshi's proposed events was desirable and the agency had no legal standing to prevent it. He supported a failed bid to allow NFL futures earlier this year. Others on the commission were cautious but supportive. Given the law's ambiguity, they worried they'd be on shaky ground if Kalshi sued if they blocked a contract. Without a permanent chairman, the agency lacked leadership.
To block a contract, DMO staff needed a majority of commissioners' support, which they didn't have in all but a few cases. "We didn't have the votes," a reviewer says, paraphrasing Hamilton. By the second half of 2021, new contract requests were arriving almost daily at the DMO, and the demoralized and overrun division eventually accepted defeat and stopped fighting back. By the end of the year, three senior DMO officials had left the agency, making it easier for Kalshi to list its contracts unimpeded.
Today, Kalshi is growing. 32 employees work in a SoHo office with big windows and exposed brick. Quintenz, who left the CFTC 10 months after Kalshi was approved, is on its board. He joined because he was interested in the market's hedging and risk management opportunities.
Mid-May, the company's website had 75 markets, such as "Will Q4 GDP be negative?" Will NASA land on the moon by 2025? The exchange recently reached 2 million weekly contracts, a jump from where it started but still a small number compared to other futures exchanges. Early adopters are PredictIt and Polymarket fans. Bets on the site are currently capped at $25,000, but Kalshi hopes to increase that to $100,000 and beyond.
With the regulatory drawbridge down, Lopes Lara and Mansour must move quickly. Chicago's CME Group Inc. plans to offer index-linked event contracts. Kalshi will release a smartphone app to attract customers. After that, it hopes to partner with a big brokerage. Sequoia is a major investor in Robinhood Markets Inc. Robinhood users could have access to Kalshi so that after buying GameStop Corp. shares, they'd be prompted to bet on the Oscars or the next Fed commissioner.
Some, like Illinois Democrat Sean Casten, accuse Robinhood and its competitors of gamifying trading to encourage addiction, but Kalshi doesn't seem worried. Mansour says Kalshi's customers can't bet more than they've deposited, making debt difficult. Eventually, he may introduce leveraged bets.
Tension over event contracts recalls another CFTC episode. Brooksley Born proposed regulating the financial derivatives market in 1994. Alan Greenspan and others in the government opposed her, saying it would stifle innovation and push capital overseas. Unrestrained, derivatives grew into a trillion-dollar industry until 2008, when they sparked the financial crisis.
Today, with a midterm election looming, it seems reasonable to ask whether Kalshi plans to get involved. Elections have historically been the biggest draw in prediction markets, with 125 million shares traded on PredictIt for 2020. “We can’t discuss specifics,” Mansour says. “All I can say is, you know, we’re always working on expanding the universe of things that people can trade on.”
Any election contracts would need CFTC approval, which may be difficult with three Democratic commissioners. A Republican president would change the equation.
Sam Hickmann
3 years ago
Donor-Advised Fund Tax Benefits (DAF)
Giving through a donor-advised fund can be tax-efficient. Using a donor-advised fund can reduce your tax liability while increasing your charitable impact.
Grow Your Donations Tax-Free.
Your DAF's charitable dollars can be invested before being distributed. Your DAF balance can grow with the market. This increases grantmaking funds. The assets of the DAF belong to the charitable sponsor, so you will not be taxed on any growth.
Avoid a Windfall Tax Year.
DAFs can help reduce tax burdens after a windfall like an inheritance, business sale, or strong market returns. Contributions to your DAF are immediately tax deductible, lowering your taxable income. With DAFs, you can effectively pre-fund years of giving with assets from a single high-income event.
Make a contribution to reduce or eliminate capital gains.
One of the most common ways to fund a DAF is by gifting publicly traded securities. Securities held for more than a year can be donated at fair market value and are not subject to capital gains tax. If a donor liquidates assets and then donates the proceeds to their DAF, capital gains tax reduces the amount available for philanthropy. Gifts of appreciated securities, mutual funds, real estate, and other assets are immediately tax deductible up to 30% of Adjusted gross income (AGI), with a five-year carry-forward for gifts that exceed AGI limits.
Using Appreciated Stock as a Gift
Donating appreciated stock directly to a DAF rather than liquidating it and donating the proceeds reduces philanthropists' tax liability by eliminating capital gains tax and lowering marginal income tax.
In the example below, a donor has $100,000 in long-term appreciated stock with a cost basis of $10,000:
Using a DAF would allow this donor to give more to charity while paying less taxes. This strategy often allows donors to give more than 20% more to their favorite causes.
For illustration purposes, this hypothetical example assumes a 35% income tax rate. All realized gains are subject to the federal long-term capital gains tax of 20% and the 3.8% Medicare surtax. No other state taxes are considered.
The information provided here is general and educational in nature. It is not intended to be, nor should it be construed as, legal or tax advice. NPT does not provide legal or tax advice. Furthermore, the content provided here is related to taxation at the federal level only. NPT strongly encourages you to consult with your tax advisor or attorney before making charitable contributions.
Ben Carlson
3 years ago
Bear market duration and how to invest during one
Bear markets don't last forever, but that's hard to remember. Jamie Cullen's illustration
A bear market is a 20% decline from peak to trough in stock prices.
The S&P 500 was down 24% from its January highs at its low point this year. Bear market.
The U.S. stock market has had 13 bear markets since WWII (including the current one). Previous 12 bear markets averaged –32.7% losses. From peak to trough, the stock market averaged 12 months. The average time from bottom to peak was 21 months.
In the past seven decades, a bear market roundtrip to breakeven has averaged less than three years.
Long-term averages can vary widely, as with all historical market data. Investors can learn from past market crashes.
Historical bear markets offer lessons.
Bear market duration
A bear market can cost investors money and time. Most of the pain comes from stock market declines, but bear markets can be long.
Here are the longest U.S. stock bear markets since World war 2:
Stock market crashes can make it difficult to break even. After the 2008 financial crisis, the stock market took 4.5 years to recover. After the dotcom bubble burst, it took seven years to break even.
The longer you're underwater in the market, the more suffering you'll experience, according to research. Suffering can lead to selling at the wrong time.
Bear markets require patience because stocks can take a long time to recover.
Stock crash recovery
Bear markets can end quickly. The Corona Crash in early 2020 is an example.
The S&P 500 fell 34% in 23 trading sessions, the fastest bear market from a high in 90 years. The entire crash lasted one month. Stocks broke even six months after bottoming. Stocks rose 100% from those lows in 15 months.
Seven bear markets have lasted two years or less since 1945.
The 2020 recovery was an outlier, but four other bear markets have made investors whole within 18 months.
During a bear market, you don't know if it will end quickly or feel like death by a thousand cuts.
Recessions vs. bear markets
Many people believe the U.S. economy is in or heading for a recession.
I agree. Four-decade high inflation. Since 1945, inflation has exceeded 5% nine times. Each inflationary spike caused a recession. Only slowing economic demand seems to stop price spikes.
This could happen again. Stocks seem to be pricing in a recession.
Recessions almost always cause a bear market, but a bear market doesn't always equal a recession. In 1946, the stock market fell 27% without a recession in sight. Without an economic slowdown, the stock market fell 22% in 1966. Black Monday in 1987 was the most famous stock market crash without a recession. Stocks fell 30% in less than a week. Many believed the stock market signaled a depression. The crash caused no slowdown.
Economic cycles are hard to predict. Even Wall Street makes mistakes.
Bears vs. bulls
Bear markets for U.S. stocks always end. Every stock market crash in U.S. history has been followed by new all-time highs.
How should investors view the recession? Investing risk is subjective.
You don't have as long to wait out a bear market if you're retired or nearing retirement. Diversification and liquidity help investors with limited time or income. Cash and short-term bonds drag down long-term returns but can ensure short-term spending.
Young people with years or decades ahead of them should view this bear market as an opportunity. Stock market crashes are good for net savers in the future. They let you buy cheap stocks with high dividend yields.
You need discipline, patience, and planning to buy stocks when it doesn't feel right.
Bear markets aren't fun because no one likes seeing their portfolio fall. But stock market downturns are a feature, not a bug. If stocks never crashed, they wouldn't offer such great long-term returns.
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Nojus Tumenas
3 years ago
NASA: Strange Betelgeuse Explosion Just Took Place
Orion's red supergiant Betelgeuse erupted. This is astronomers' most magnificent occurrence.
Betelgeuse, a supergiant star in Orion, garnered attention in 2019 for its peculiar appearance. It continued to dim in 2020.
The star was previously thought to explode as a supernova. Studying the event has revealed what happened to Betelgeuse since it happened.
Astronomers saw that the star released a large amount of material, causing it to lose a section of its surface.
They have never seen anything like this and are unsure what caused the star to release so much material.
According to Harvard-Smithsonian Center for Astrophysics astrophysicist Andrea Dupre, astronomers' data reveals an unexplained mystery.
They say it's a new technique to examine star evolution. The James Webb telescope revealed the star's surface features.
Corona flares are stellar mass ejections. These eruptions change the Sun's outer atmosphere.
This could affect power grids and satellite communications if it hits Earth.
Betelgeuse's flare ejected four times more material than the Sun's corona flare.
Astronomers have monitored star rhythms for 50 years. They've seen its dimming and brightening cycle start, stop, and repeat.
Monitoring Betelgeuse's pulse revealed the eruption's power.
Dupre believes the star's convection cells are still amplifying the blast's effects, comparing it to an imbalanced washing machine tub.
The star's outer layer has returned to normal, Hubble data shows. The photosphere slowly rebuilds its springy surface.
Dupre noted the star's unusual behavior. For instance, it’s causing its interior to bounce.
This suggests that the mass ejections that caused the star's surface to lose mass were two separate processes.
Researchers hope to better understand star mass ejection with the James Webb Space Telescope.
Daniel Clery
3 years ago
Twisted device investigates fusion alternatives
German stellarator revamped to run longer, hotter, compete with tokamaks
Tokamaks have dominated the search for fusion energy for decades. Just as ITER, the world's largest and most expensive tokamak, nears completion in southern France, a smaller, twistier testbed will start up in Germany.
If the 16-meter-wide stellarator can match or outperform similar-size tokamaks, fusion experts may rethink their future. Stellarators can keep their superhot gases stable enough to fuse nuclei and produce energy. They can theoretically run forever, but tokamaks must pause to reset their magnet coils.
The €1 billion German machine, Wendelstein 7-X (W7-X), is already getting "tokamak-like performance" in short runs, claims plasma physicist David Gates, preventing particles and heat from escaping the superhot gas. If W7-X can go long, "it will be ahead," he says. "Stellarators excel" Eindhoven University of Technology theorist Josefine Proll says, "Stellarators are back in the game." A few of startup companies, including one that Gates is leaving Princeton Plasma Physics Laboratory, are developing their own stellarators.
W7-X has been running at the Max Planck Institute for Plasma Physics (IPP) in Greifswald, Germany, since 2015, albeit only at low power and for brief runs. W7-X's developers took it down and replaced all inner walls and fittings with water-cooled equivalents, allowing for longer, hotter runs. The team reported at a W7-X board meeting last week that the revised plasma vessel has no leaks. It's expected to restart later this month to show if it can get plasma to fusion-igniting conditions.
Wendelstein 7-X's water-cooled inner surface allows for longer runs.
HOSAN/IPP
Both stellarators and tokamaks create magnetic gas cages hot enough to melt metal. Microwaves or particle beams heat. Extreme temperatures create a plasma, a seething mix of separated nuclei and electrons, and cause the nuclei to fuse, releasing energy. A fusion power plant would use deuterium and tritium, which react quickly. Non-energy-generating research machines like W7-X avoid tritium and use hydrogen or deuterium instead.
Tokamaks and stellarators use electromagnetic coils to create plasma-confining magnetic fields. A greater field near the hole causes plasma to drift to the reactor's wall.
Tokamaks control drift by circulating plasma around a ring. Streaming creates a magnetic field that twists and stabilizes ionized plasma. Stellarators employ magnetic coils to twist, not plasma. Once plasma physicists got powerful enough supercomputers, they could optimize stellarator magnets to improve plasma confinement.
W7-X is the first large, optimized stellarator with 50 6- ton superconducting coils. Its construction began in the mid-1990s and cost roughly twice the €550 million originally budgeted.
The wait hasn't disappointed researchers. W7-X director Thomas Klinger: "The machine operated immediately." "It's a friendly machine." It did everything we asked." Tokamaks are prone to "instabilities" (plasma bulging or wobbling) or strong "disruptions," sometimes associated to halted plasma flow. IPP theorist Sophia Henneberg believes stellarators don't employ plasma current, which "removes an entire branch" of instabilities.
In early stellarators, the magnetic field geometry drove slower particles to follow banana-shaped orbits until they collided with other particles and leaked energy. Gates believes W7-X's ability to suppress this effect implies its optimization works.
W7-X loses heat through different forms of turbulence, which push particles toward the wall. Theorists have only lately mastered simulating turbulence. W7-X's forthcoming campaign will test simulations and turbulence-fighting techniques.
A stellarator can run constantly, unlike a tokamak, which pulses. W7-X has run 100 seconds—long by tokamak standards—at low power. The device's uncooled microwave and particle heating systems only produced 11.5 megawatts. The update doubles heating power. High temperature, high plasma density, and extensive runs will test stellarators' fusion power potential. Klinger wants to heat ions to 50 million degrees Celsius for 100 seconds. That would make W7-X "a world-class machine," he argues. The team will push for 30 minutes. "We'll move step-by-step," he says.
W7-X's success has inspired VCs to finance entrepreneurs creating commercial stellarators. Startups must simplify magnet production.
Princeton Stellarators, created by Gates and colleagues this year, has $3 million to build a prototype reactor without W7-X's twisted magnet coils. Instead, it will use a mosaic of 1000 HTS square coils on the plasma vessel's outside. By adjusting each coil's magnetic field, operators can change the applied field's form. Gates: "It moves coil complexity to the control system." The company intends to construct a reactor that can fuse cheap, abundant deuterium to produce neutrons for radioisotopes. If successful, the company will build a reactor.
Renaissance Fusion, situated in Grenoble, France, raised €16 million and wants to coat plasma vessel segments in HTS. Using a laser, engineers will burn off superconductor tracks to carve magnet coils. They want to build a meter-long test segment in 2 years and a full prototype by 2027.
Type One Energy in Madison, Wisconsin, won DOE money to bend HTS cables for stellarator magnets. The business carved twisting grooves in metal with computer-controlled etching equipment to coil cables. David Anderson of the University of Wisconsin, Madison, claims advanced manufacturing technology enables the stellarator.
Anderson said W7-X's next phase will boost stellarator work. “Half-hour discharges are steady-state,” he says. “This is a big deal.”
Aure's Notes
3 years ago
I met a man who in just 18 months scaled his startup to $100 million.
A fascinating business conversation.
This week at Web Summit, I had mentor hour.
Mentor hour connects startups with experienced entrepreneurs.
The YC-selected founder who mentored me had grown his company to $100 million in 18 months.
I had 45 minutes to question him.
I've compiled this.
Context
Founder's name is Zack.
After working in private equity, Zack opted to acquire an MBA.
Surrounded by entrepreneurs at a prominent school, he decided to become one himself.
Unsure how to proceed, he bet on two horses.
On one side, he received an offer from folks who needed help running their startup owing to lack of time. On the other hand, he had an idea for a SaaS to start himself.
He just needed to validate it.
Validating
Since Zack's proposal helped companies, he contacted university entrepreneurs for comments.
He contacted university founders.
Once he knew he'd correctly identified the problem and that people were willing to pay to address it, he started developing.
He earned $100k in a university entrepreneurship competition.
His plan was evident by then.
The other startup's founders saw his potential and granted him $400k to launch his own SaaS.
Hiring
He started looking for a tech co-founder because he lacked IT skills.
He interviewed dozens and picked the finest.
As he didn't want to wait for his program to be ready, he contacted hundreds of potential clients and got 15 letters of intent promising they'd join up when it was available.
YC accepted him by then.
He had enough positive signals to raise.
Raising
He didn't say how many VCs he called, but he indicated 50 were interested.
He jammed meetings into two weeks to generate pressure and encourage them to invest.
Seed raise: $11 million.
Selling
His objective was to contact as many entrepreneurs as possible to promote his product.
He first contacted startups by scraping CrunchBase data.
Once he had more money, he started targeting companies with ZoomInfo.
His VC urged him not to hire salespeople until he closed 50 clients himself.
He closed 100 and hired a CRO through a headhunter.
Scaling
Three persons started the business.
He primarily works in sales.
Coding the product was done by his co-founder.
Another person performing operational duties.
He regretted recruiting the third co-founder, who was ineffective (could have hired an employee instead).
He wanted his company to be big, so he hired two young marketing people from a competing company.
After validating several marketing channels, he chose PR.
$100 Million and under
He developed a sales team and now employs 30 individuals.
He raised a $100 million Series A.
Additionally, he stated
He’s been rejected a lot. Like, a lot.
Two great books to read: Steve Jobs by Isaacson, and Why Startups Fail by Tom Eisenmann.
The best skill to learn for non-tech founders is “telling stories”, which means sales. A founder’s main job is to convince: co-founders, employees, investors, and customers. Learn code, or learn sales.
Conclusion
I often read about these stories but hardly take them seriously.
Zack was amazing.
Three things about him stand out:
His vision. He possessed a certain amount of fire.
His vitality. The man had a lot of enthusiasm and spoke quickly and decisively. He takes no chances and pushes the envelope in all he does.
His Rolex.
He didn't do all this in 18 months.
Not really.
He couldn't launch his company without private equity experience.
These accounts disregard entrepreneurs' original knowledge.
Hormozi will tell you how he founded Gym Launch, but he won't tell you how he had a gym first, how he worked at uni to pay for his gym, or how he went to the gym and learnt about fitness, which gave him the idea to open his own.
Nobody knows nothing. If you scale quickly, it's probable because you gained information early.
Lincoln said, "Give me six hours to chop down a tree, and I'll spend four sharpening the axe."
Sharper axes cut trees faster.