How do market makers make money?

[wildchild]

Me answering the question, does not preclude Robert or anyone else from answering your questions.

Didn't claim it did!

 

[Robert Morse]

So during the flash crash, would any market maker on that security take it on the chin? I assume there would be high likelihood of them posting big loses during these episodes.

I have no idea, but I do not see any public companies that are MM present outsized losses during those times.

 

[Robert Morse]

I thought OMM delta hedge?

Most, but not all. Most of the traders I have met from firms like SIG are told not to over hedge. The more automated they are, they more they likely hedge, but how often is part of their code.

 

[volpri]

lol buyers of last resort. Your post is completely devoid of useful info and almost entirely wrong. WTF are you here?

@destriero so you ask why I am here? Maybe to keep yatchsman like you twittling their toes...ROFLMAO

 

[qubit000]

They employ 'Quants' who develop algorithms that engage in 'HFS' - high frequency trading that not only exploit the spread between bid/ask but any potential pattern where thy can take contrarian trade.

 

[ETJ]

Since the demise of much of the human MM - what has become a big concern are "fat finger" mistakes similar to one that took down KCG.

 

[Nobert]

(?)

Reminds me of online video game,
( even tho, he mentions, multiple times, that it's not a game )

that i played as teenager, where different magic orbs, would serve as currency,

thus, me and other, advanced players,
would have , full stock/inventory of those ;

all day long,

we would buy for the less , from other players, and sell for more - to others.

Providing liquidity.

As the years went on, those currencies, expierenced inflation, while some stayed still, like a gold standart.

When there was no sellers at the server,

the price was,

- up to the last merchant.

 

[madness007]

Nice dude, nice...

 

[tommo]

I've worked on market making desks for years. Market makers get paid a fee by the exchange for meetining minimum quoting obligations. Often have to be x number of ticks away from best bid/offer 80% of the month.

Some MM deals you don't get a monthly fee but free exchange fees so the prop side of the business has a bit of an edge being able to trade at lower costs.

The downside is you often get filled on violent moves when you don't want to be filled. The name of the game is to get filled as little as possible and when you do get filled to hedge it off as best as you can hence its mostly all automated.

 

[bone]

This is when MM’s get absolutely hosed. I’ve really hurt some MM’s badly when I traded OTC energy. As a Commercial producer I had inside information.

The downside is you often get filled on violent moves when you don't want to be filled. The name of the game is to get filled as little as possible and when you do get filled to hedge it off as best as you can hence its mostly all automated.