Who are the market makers?

[maxinger]

Do not fear MM. They are like professional traders who want to earn money from trading. They worked very hard to develop the holy grail. They are harmless. They don't wear bomb vest.


They are different from those who treat trading as gambling. They are simply lazy and spend lots of time with crystal ball

 

[bone]

isn't the whole idea of market making to not have an opinion

X2. Market Makers have NO opinion on market direction. They buy bids and sell offers.

 

[murray t turtle]

Possibly supply & demand, and then mathematicians who develop market making pricing and inventory models:

http://stanford.edu/class/msande448/2018/Final/Reports/gr5.pdf

https://arxiv.org/pdf/1903.07222.pdf

http://wp.lancs.ac.uk/finec2018/files/2018/09/FINEC-2018-028-Xiaofei.Lu_.pdf

%%
Good read; i Would not call AMZN a ''loW Volume stock'' but they[ MM model] did.I'm not a market maker or a model for MM LOL,also LOL..........................................................[Delayed edit, IBD/WON never worried about big bid/ask+ not a stock tip on AMZN even though i noticed a IBKR ad with it]

 

[Deez]

This is a synthetic portfolio with a typical (unhedged) asset allocation. This is 28% blue chip stocks and 72% treasury bonds. You can see them working the market to get liquidity so they can get hedges on and/or take hedges off.

View attachment 216874

In this instance, "working the market" is drawing in buyers that will sell shortly after, sell likely at a lower price, to large buyers. Is that correct? the MM's are taking relatively little heat on their shorts. I've observed these mini trends (higher lows, lower highs) for quite some time and something always seemed synthetic about them.

 

[Deez]

If my above analysis is correct this would be the opposite scenario. Here, they are setting up the market to provide liquidity for a large seller

 

[bone]

I'm amazed at how many people use terms without knowing what they mean.

Quite literally - Market Makers Bid and Offer. They buy bids and sell offers. That's it. They don't carry core speculative positions. The core positions that they do carry are due to a bias from those participants taking liquidity. MM's make liquidity. Big difference.

In this instance, "working the market" is drawing in buyers that will sell shortly after, sell likely at a lower price, to large buyers. Is that correct? the MM's are taking relatively little heat on their shorts. I've observed these mini trends (higher lows, lower highs) for quite some time and something always seemed synthetic about them.

 

[Deez]

I'm amazed at how many people use terms without knowing what they mean.

Quite literally - Market Makers Bid and Offer. They buy bids and sell offers. That's it. They don't carry core speculative positions. The core positions that they do carry are due to a bias from those participants taking liquidity. MM's make liquidity. Big difference.

If you reread what I posted the brokers are working the market. Subsequently, the market makers are net short, but know it's an artificial price level thus are willing to provide liquidity. I understand what MM's do, but they can choose how much size to bid and offer which can impact market direction, no?

 

[bone]

For your thesis to be true, MM's would have to quite literally know in advance where the market is going in the short term. Which is of course false.

And how exactly do brokers "work the market" ? All they care about is selling your order flow and taking a commission (although they are relying more on order flow sales and less on commissions). Brokers have no idea where the market is heading.

If you reread what I posted the brokers are working the market. Subsequently, the market makers are net short, but know it's an artificial price level thus are willing to provide liquidity. I understand what MM's do, but they can choose how much size to bid and offer which can impact market direction, no?

 

[murray t turtle]

Do not fear MM. They are like professional traders who want to earn money from trading. They worked very hard to develop the holy grail. They are harmless.......

They are different from those who treat trading as gambling. They are simply lazy and spend lots of time with crystal ball

%%
LOL Exactly ;
+ do not think a MM is any body's profit problem. I would not call making the spread [ bid /ask profit/ Market Maker's edge]the holy grail, but that is the Way the way they make millions.

 

[Deez]

For your thesis to be true, MM's would have to quite literally know in advance where the market is going in the short term. Which is of course false.

And how exactly do brokers "work the market" ? All they care about is selling your order flow and taking a commission (although they are relying more on order flow sales and less on commissions). Brokers have no idea where the market is heading.

I'm just trying to extrapolate what RM said but I appreciate you playing devil's advocate.