What are some (illegal) tricks that market makers use?

[qlai]

They can still front-run

This is under 'Stocks' thread. No US Broker trades for their own account, so they do not front run your orders.

Why would I ever get a fill that is way out of the range of anything I saw in my level 2 quotes during the time my trade was open?

Your order was in the order book at one of the lit exchanges and got traded through? Or was your order on some server at brokerage firm and by the time it got to the exchange, the price had moved? What you see over your "high speed" internet connection, is often times not where the market is at the moment.

 

[Wheezooo]

I once did a curb trade before the opening. Other than that. A perfectly clean career. Compliance always frightened me. Anything that falls under the realm of the "Feds" is not worth the potential problem. Like walking into day one of the 9th grade, finding the biggest 12th grader and spitting in his eye.

 

[Sig]

Strict compliance to do what, though? They can still front-run, dark pool and run test trades for price discovery. Why would I ever get a fill that is way out of the range of anything I saw in my level 2 quotes during the time my trade was open? Being "legal" is not the same as being honest.

I think you fundamentally misunderstand the role of a broker. You seem to either be confusing them with a bucket shop or a hedge fund. Brokers in the US at least dont trade for their own account, so how could they "front run" or "run test trades"? And every employee at the brokerage, as well as their spouses and significant others, have to have every trade they make in their personal account cleared by the company compliance office before making it, as well as providing their compliance office full access to view all of their account activity at any brokerage where they hold an account (if they don't just limit them to one account). Believe me, from being one of those spouses I can tell you that trading at all is virtually impossible, let alone the stuff you're alleging. I'm sure a couple bad apples get away with bad things from time to time, but don't flatter yourself, if they're going to face federal prison time they're not going to risk it front running your piddly $15k order!
The sooner you accept your losses as belonging entirely to you and own that shit instead of blaming them on some convenient phantom boogeyman the sooner you'll at least have a chance of becoming a successful trader. And some basic education on how markets work wouldn't hurt either.

 

[trader_980]

Market makers can manipulate the market in various ways to squeeze out some extra funds for themselves. They may try to make the market when no one else is available and try to place orders ahead of yours to get the spread that you should have. Or, they sometimes engage in spoofing and flash various orders in the market to make the market move high or low. This again is unethical. When a market moves quickly, a market maker may actually replace your order with his own, if he gets extra returns. This again benefits the market maker at the trader’s expense.

 

[Sig]

Market makers can manipulate the market in various ways to squeeze out some extra funds for themselves. They may try to make the market when no one else is available and try to place orders ahead of yours to get the spread that you should have. Or, they sometimes engage in spoofing and flash various orders in the market to make the market move high or low. This again is unethical. When a market moves quickly, a market maker may actually replace your order with his own, if he gets extra returns. This again benefits the market maker at the trader’s expense.

Again, fundamental misunderstanding for roles here. First off, of course a MM is going to "try to make the market when no one else is available", that is in fact the role of a MM for pete's sake! They offer a bid and an ask on a product and are always available as a buyer or seller, there is nothing "unethical" about that in any universe. And it's just not even physically possible for a MM to "actually replace your order with his own", they don't run the exchange or a brokerage. Why people feel the need to talk out their ass about things they clearly know absolutely nothing about is just baffling to me.

 

[GrowleyMonster]

It is delusional to imagine that front running never occurs. It would be a simple matter for some criminal to develop influence over a broker through various methods, and there would be no obvious tie between broker and the other guy, who would then have access to selected order information a second or two before the original order is placed. Remember, most of us imagine a world without guile, where one is never deceived or tricked. There are others who imagine how to bleed the system like a financial parasite. Not saying it happens a lot, but you better believe if I can conceive of it, some organized crime figure already thought of it decades ago. Would an honest broker not being extorted or blackmailed, routinely engage in this practice? Of course not. The risks are too great for the price he would pay if caught. Not much temptation there. Is it common for a broker or brokerage contractor or employee to fall under the control of a ruthless and dishonest person? No, not common. The scheme is probably more trouble than it is worth, TBH, and if it was widespread, it would be in the news and on prosecutorial agendas. There are better ways to milk that cow, I am sure. But there undeniably are career criminals who specialize in persuading honest people to do dishonest deeds. I am thinking when you do stuff like that for a living, you get pretty good at it, too.

 

[Sig]

It is delusional to imagine that front running never occurs. It would be a simple matter for some criminal to develop influence over a broker through various methods, and there would be no obvious tie between broker and the other guy, who would then have access to selected order information a second or two before the original order is placed. Remember, most of us imagine a world without guile, where one is never deceived or tricked. There are others who imagine how to bleed the system like a financial parasite. Not saying it happens a lot, but you better believe if I can conceive of it, some organized crime figure already thought of it decades ago. Would an honest broker not being extorted or blackmailed, routinely engage in this practice? Of course not. The risks are too great for the price he would pay if caught. Not much temptation there. Is it common for a broker or brokerage contractor or employee to fall under the control of a ruthless and dishonest person? No, not common. The scheme is probably more trouble than it is worth, TBH, and if it was widespread, it would be in the news and on prosecutorial agendas. There are better ways to milk that cow, I am sure. But there undeniably are career criminals who specialize in persuading honest people to do dishonest deeds. I am thinking when you do stuff like that for a living, you get pretty good at it, too.

The point isn't that it never happens, you just need to read through the SEC enforcement actions to see that it does. The point is that it happens very rarely and never at a scale that it would be the reason that a punter on here with his $5,000 order was impacted by it in any real way. It is human nature though, to try to blame anyone but yourself for failures, and those nefarious front-running brokers (or now I guess market makers as well!) are a lot easier to blame then the fact that the person in question is simply engaging in something they clearly know nothing about and predictably failing at it.

 

[GrowleyMonster]

@Sig, you are quite right that too many guys blame everyone but themselves for their failures as a trader or investor. I can't argue with that. And those who can't face their own failures and weaknesses will never be able to properly address and correct them.

I think maybe insiders (not just company insiders, either) making advantageous press or media releases, directly or through third parties is manipulating markets for selfish purpose more than anything else. Is it illegal for a financial columnist or guru to buy a stock and then exaggerate a report on it and declare it a "strong buy"? Or the reverse? Or even take a long or short position aided by his publicly stated opinion as a trusted source, and then reverse both position and opinion? I don't know if it is illegal but it is definitely immoral and dishonest, and therefore someone is certainly doing it. Are Market Makers or even majority shareholders above such shenanigans? One would hope. Some folks would have unwavering faith that it does not happen. Others would say "go ahead and believe that if you want to."

Just because you are paranoid doesn't mean they aren't really out to get you.

So the markets are manipulated. I think. At least to some small degree. What else is new? It is like a casino. If the game is rigged so strongly that nobody can win, nobody will play. The stock market wouldn't even exist if it were so heavily manipulated that nobody could earn. So those who can, simply ignore the house advantage, and play in spite of the backroom hijinks, and win. Those who can't, blame the system and those who abuse it, if they are like most people. The smart ones either know when they are whipped and are in over their heads and get out, or look in the mirror and realize who their own worst enemy is, and do something constructive about it.

 

[TommyR]

if a long term investor were to declare his position the market would rapidly move in his favour in a disorderly fashion. this would be insider trading. therefore investors keep their positions extremely secret to avoid excess returns over the risk free rate.

 

[qlai]

if a long term investor were to declare his position the market would rapidly move in his favour in a disorderly fashion. this would be insider trading.

I don't think so ... haven't you watched CNBC!? It's not insider trader and it's exactly what they are doing ... talking up their book. Consult with @dozu888