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Theresa W. Carey

Theresa W. Carey

3 months ago

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

Sam Hickmann

Sam Hickmann

5 months 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.

Sam Hickmann

Sam Hickmann

3 months ago

What is this Fed interest rate everybody is talking about that makes or breaks the stock market?

The Federal Funds Rate (FFR) is the target interest rate set by the Federal Reserve System (Fed)'s policy-making body (FOMC). This target is the rate at which the Fed suggests commercial banks borrow and lend their excess reserves overnight to each other.

The FOMC meets 8 times a year to set the target FFR. This is supposed to promote economic growth. The overnight lending market sets the actual rate based on commercial banks' short-term reserves. If the market strays too far, the Fed intervenes.

Banks must keep a certain percentage of their deposits in a Federal Reserve account. A bank's reserve requirement is a percentage of its total deposits. End-of-day bank account balances averaged over two-week reserve maintenance periods are used to determine reserve requirements.

If a bank expects to have end-of-day balances above what's needed, it can lend the excess to another institution.

The FOMC adjusts interest rates based on economic indicators that show inflation, recession, or other issues that affect economic growth. Core inflation and durable goods orders are indicators.

In response to economic conditions, the FFR target has changed over time. In the early 1980s, inflation pushed it to 20%. During the Great Recession of 2007-2009, the rate was slashed to 0.15 percent to encourage growth.

Inflation picked up in May 2022 despite earlier rate hikes, prompting today's 0.75 percent point increase. The largest increase since 1994. It might rise to around 3.375% this year and 3.1% by the end of 2024.

Chritiaan Hetzner

1 month ago

Mystery of the $1 billion'meme stock' that went to $400 billion in days

Who is AMTD Digital?

An unknown Hong Kong corporation joined the global megacaps worth over $500 billion on Tuesday.

The American Depository Share (ADS) with the ticker code HKD gapped at the open, soaring 25% over the previous closing price as trading began, before hitting an intraday high of $2,555.

At its peak, its market cap was almost $450 billion, more than Facebook parent Meta or Alibaba.

Yahoo Finance reported a daily volume of 350,500 shares, the lowest since the ADS began trading and much below the average of 1.2 million.

Despite losing a fifth of its value on Wednesday, it's still worth more than Toyota, Nike, McDonald's, or Walt Disney.

The company sold 16 million shares at $7.80 each in mid-July, giving it a $1 billion market valuation.

Why the boom?

That market cap seems unjustified.

According to SEC reports, its income-generating assets barely topped $400 million in March. Fortune's emails and calls went unanswered.

Website discloses little about company model. Its one-minute business presentation film uses a Star Wars–like design to sell the company as a "one-stop digital solutions platform in Asia"

The SEC prospectus explains.

AMTD Digital sells a "SpiderNet Ecosystems Solutions" kind of club membership that connects enterprises. This is the bulk of its $25 million annual revenue in April 2021.

Pretax profits have been higher than top line over the past three years due to fair value accounting gains on Appier, DayDayCook, WeDoctor, and five Asian fintechs.

AMTD Group, the company's parent, specializes in investment banking, hotel services, luxury education, and media and entertainment. AMTD IDEA, a $14 billion subsidiary, is also traded on the NYSE.

“Significant volatility”

Why AMTD Digital listed in the U.S. is unknown, as it informed investors in its share offering prospectus that could delist under SEC guidelines.

Beijing's red tape prevents the Sarbanes-Oxley Board from inspecting its Chinese auditor.

This frustrates Chinese stock investors. If the U.S. and China can't achieve a deal, 261 Chinese companies worth $1.3 trillion might be delisted.

Calvin Choi left UBS to become AMTD Group's CEO.

His capitalist background and status as a Young Global Leader with the World Economic Forum don't stop him from praising China's Communist party or celebrating the "glory and dream of the Great Rejuvenation of the Chinese nation" a century after its creation.

Despite having an executive vice chairman with a record of battling corruption and ties to Carrie Lam, Beijing's previous proconsul in Hong Kong, Choi is apparently being targeted for a two-year industry ban by the city's securities regulator after an investor accused Choi of malfeasance.

Some CMIG-funded initiatives produced money, but he didn't give us the proceeds, a corporate official told China's Caixin in October 2020. We don't know if he misappropriated or lost some money.

A seismic anomaly

In fundamental analysis, where companies are valued based on future cash flows, AMTD Digital's mind-boggling market cap is a statistical aberration that should occur once every hundred years.

AMTD Digital doesn't know why it's so valuable. In a thank-you letter to new shareholders, it said it was confused by the stock's performance.

Since its IPO, the company has seen significant ADS price volatility and active trading volume, it said Tuesday. "To our knowledge, there have been no important circumstances, events, or other matters since the IPO date."

Permabears awoke after the jump. Jim Chanos asked if "we're all going to ignore the $400 billion meme stock in the room," while Nate Anderson called AMTD Group "sketchy."

It happened the same day SEC Chair Gary Gensler praised the 20th anniversary of the Sarbanes-Oxley Act, aimed to restore trust in America's financial markets after the Enron and WorldCom accounting fraud scandals.

The run-up revived unpleasant memories of Robinhood's decision to limit retail investors' ability to buy GameStop, regarded as a measure to protect hedge funds invested in the meme company.

Why wasn't HKD's buy button removed? Because retail wasn't behind it?" tweeted Gensler on Tuesday. "Real stock fraud. "You're worthless."

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Joseph Mavericks

Joseph Mavericks

1 month ago

You Don't Have to Spend $250 on TikTok Ads Because I Did

900K impressions, 8K clicks, and $$$ orders…

Photo by Eyestetix Studio on Unsplash

I recently started dropshipping. Now that I own my business and can charge it as a business expense, it feels less like money wasted if it doesn't work. I also made t-shirts to sell. I intended to open a t-shirt store and had many designs on a hard drive. I read that Tiktok advertising had a high conversion rate and low cost because they were new. According to many, the advertising' cost/efficiency ratio would plummet and become as bad as Google or Facebook Ads. Now felt like the moment to try Tiktok marketing and dropshipping. I work in marketing for a SaaS firm and have seen how poorly ads perform. I wanted to try it alone.

I set up $250 and ran advertising for a week. Before that, I made my own products, store, and marketing. In this post, I'll show you my process and results.

Setting up the store

Dropshipping is a sort of retail business in which the manufacturer ships the product directly to the client through an online platform maintained by a seller. The seller takes orders but has no stock. The manufacturer handles all orders. This no-stock concept increases profitability and flexibility.

In my situation, I used previous t-shirt designs to make my own product. I didn't want to handle order fulfillment logistics, so I looked for a way to print my designs on demand, ship them, and handle order tracking/returns automatically. So I found Printful.

Source

I needed to connect my backend and supplier to a storefront so visitors could buy. 99% of dropshippers use Shopify, but I didn't want to master the difficult application. I wanted a one-day project. I'd previously worked with Big Cartel, so I chose them.

Source

Big Cartel doesn't collect commissions on sales, simply a monthly flat price ($9.99 to $19.99 depending on your plan).

After opening a Big Cartel account, I uploaded 21 designs and product shots, then synced each product with Printful.

Source (the store is down to 5 products because I switched back to the free plan)

Developing the ads

I mocked up my designs on cool people photographs from placeit.net, a great tool for creating product visuals when you don't have a studio, camera gear, or models to wear your t-shirts.

I opened an account on the website and had advertising visuals within 2 hours.

Source

Because my designs are simple (black design on white t-shirt), I chose happy, stylish people on plain-colored backdrops. After that, I had to develop an animated slideshow.

Because I'm a graphic designer, I chose to use Adobe Premiere to create animated Tiktok advertising.

Premiere is a fancy video editing application used for more than advertisements. Premiere is used to edit movies, not social media marketing. I wanted this experiment to be quick, so I got 3 social media ad templates from motionarray.com and threw my visuals in. All the transitions and animations were pre-made in the files, so it only took a few hours to compile. The result:

I downloaded 3 different soundtracks for the videos to determine which would convert best.

After that, I opened a Tiktok business account, uploaded my films, and inserted ad info. They went live within one hour.

The (poor) outcomes

Image by author

As a European company, I couldn't deliver ads in the US. All of my advertisements' material (title, description, and call to action) was in English, hence they continued getting rejected in Europe for countries that didn't speak English. There are a lot of them:

I lost a lot of quality traffic, but I felt that if the images were engaging, people would check out the store and buy my t-shirts. I was wrong.

  • 51,071 impressions on Day 1. 0 orders after 411 clicks

  • 114,053 impressions on Day 2. 1.004 clicks and no orders

  • Day 3: 987 clicks, 103,685 impressions, and 0 orders

  • 101,437 impressions on Day 4. 0 orders after 963 clicks

  • 115,053 impressions on Day 5. 1,050 clicks and no purchases

  • 125,799 impressions on day 6. 1,184 clicks, no purchases

  • 115,547 impressions on Day 7. 1,050 clicks and no purchases

  • 121,456 impressions on day 8. 1,083 clicks, no purchases

  • 47,586 impressions on Day 9. 419 Clicks. No orders

My overall conversion rate for video advertisements was 0.9%. TikTok's paid ad formats all result in strong engagement rates (ads average 3% to 12% CTR to site), therefore a 1 to 2% CTR should have been doable.

My one-week experiment yielded 8,151 ad clicks but no sales. Even if 0.1% of those clicks converted, I should have made 8 sales. Even companies with horrible web marketing would get one download or trial sign-up for every 8,151 clicks. I knew that because my advertising were in English, I had no impressions in the main EU markets (France, Spain, Italy, Germany), and that this impacted my conversion potential. I still couldn't believe my numbers.

I dug into the statistics and found that Tiktok's stats didn't match my store traffic data.

Looking more closely at the numbers

My ads were approved on April 26 but didn't appear until April 27. My store dashboard showed 440 visitors but 1,004 clicks on Tiktok. This happens often while tracking campaign results since different platforms handle comparable user activities (click, view) differently. In online marketing, residual data won't always match across tools.

My data gap was too large. Even if half of the 1,004 persons who clicked closed their browser or left before the store site loaded, I would have gained 502 visitors. The significant difference between Tiktok clicks and Big Cartel store visits made me suspicious. It happened all week:

  • Day 1: 440 store visits and 1004 ad clicks

  • Day 2: 482 store visits, 987 ad clicks

  • 3rd day: 963 hits on ads, 452 store visits

  • 443 store visits and 1,050 ad clicks on day 4.

  • Day 5: 459 store visits and 1,184 ad clicks

  • Day 6: 430 store visits and 1,050 ad clicks

  • Day 7: 409 store visits and 1,031 ad clicks

  • Day 8: 166 store visits and 418 ad clicks

The disparity wasn't related to residual data or data processing. The disparity between visits and clicks looked regular, but I couldn't explain it.

After the campaign concluded, I discovered all my creative assets (the videos) had a 0% CTR and a $0 expenditure in a separate dashboard. Whether it's a dashboard reporting issue or a budget allocation bug, online marketers shouldn't see this.

Image by author

Tiktok can present any stats they want on their dashboard, just like any other platform that runs advertisements to promote content to its users. I can't verify that 895,687 individuals saw and clicked on my ad. I invested $200 for what appears to be around 900K impressions, which is an excellent ROI. No one bought a t-shirt, even an unattractive one, out of 900K people?

Would I do it again?

Nope. Whether I didn't make sales because Tiktok inflated the dashboard numbers or because I'm horrible at producing advertising and items that sell, I’ll stick to writing content and making videos. If setting up a business and ads in a few days was all it took to make money online, everyone would do it.

Video advertisements and dropshipping aren't dead. As long as the internet exists, people will click ads and buy stuff. Converting ads and selling stuff takes a lot of work, and I want to focus on other things.

I had always wanted to try dropshipping and I’m happy I did, I just won’t stick to it because that’s not something I’m interested in getting better at.

If I want to sell t-shirts again, I'll avoid Tiktok advertisements and find another route.

The woman

The woman

1 month ago

I received a $2k bribe to replace another developer in an interview

I can't believe they’d even think it works!

Photo by Brett Jordan

Developers are usually interviewed before being hired, right? Every organization wants candidates who meet their needs. But they also want to avoid fraud.

There are cheaters in every field. Only two come to mind for the hiring process:

  • Lying on a resume.

  • Cheating on an online test.

Recently, I observed another one. One of my coworkers invited me to replace another developer during an online interview! I was astonished, but it’s not new.

The specifics

My ex-colleague recently texted me. No one from your former office will ever approach you after a year unless they need something.

Which was the case. My coworker said his wife needed help as a programmer. I was glad someone asked for my help, but I'm still a junior programmer.

Then he informed me his wife was selected for a fantastic job interview. He said he could help her with the online test, but he needed someone to help with the online interview.

Okay, I guess. Preparing for an online interview is beneficial. But then he said she didn't need to be ready. She needed someone to take her place.

I told him it wouldn't work. Every remote online interview I've ever seen required an open camera.

What followed surprised me. She'd ask to turn off the camera, he said.

I asked why.

He told me if an applicant is unwell, the interviewer may consider an off-camera interview. His wife will say she's sick and prefers no camera.

The plan left me speechless. I declined politely. He insisted and promised $2k if she got the job.

I felt insulted and told him if he persisted, I'd inform his office. I was furious. Later, I apologized and told him to stop.

I'm not sure what they did after that

I'm not sure if they found someone or listened to me. They probably didn't. How would she do the job if she even got it?

It's an internship, he said. With great pay, though. What should an intern do?

I suggested she do the interview alone. Even if she failed, she'd gain confidence and valuable experience.

Conclusion

Many interviewees cheat. My profession is vital to me, thus I'd rather improve my abilities and apply honestly. It's part of my identity.

Am I truthful? Most professionals are not. They fabricate their CVs. Often.

When you support interview cheating, you encourage more cheating! When someone cheats, another qualified candidate may not obtain the job.

One day, that could be you or me.

Daniel Clery

21 days ago

Twisted device investigates fusion alternatives

German stellarator revamped to run longer, hotter, compete with tokamaks

Wendelstein 7-X’s complex geometry was a nightmare to build but, when fired up, worked from the start.

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 twisting inner surface is now water cooled, enabling longer runs

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.”