Do market makers operate as a cartel?

I'm assuming that they are well aware of game theory and the Nash equilibrium and that they do.
Any insights/comments appreciated.

No. Thet may well be aware or not of all manner of things, but primarily they read market conditions and secondarily, attempt to create market conditions which suit their longer term aims.

They are up against each other (and institutions play their own little games with them all too ) - and almost certainly not interested in 'getting' us little retail boys & girls.

Not only do they not need a cartel - they couldn't operate successfully themselves within one.

TheBramble said:

No. Thet may well be aware or not of all manner of things, but primarily they read market conditions and secondarily, attempt to create market conditions which suit their longer term aims.

They are up against each other (and institutions play their own little games with them all too ) - and almost certainly not interested in 'getting' us little retail boys & girls.

Not only do they not need a cartel - they couldn't operate successfully themselves within one.

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So it's a case of reading their game, and their footprints to see what the future holds in store? Makes sense.

Do these guys not run buy side and sell side to catch the unaware in the crossfire?

Interesting stuff, makes you wonder how people fall for the same old tricks, time over.

Interesting.

What would be the best entry principle, knowing that the big buyers and sellers move the market value?

Paul71 said:

What would be the best entry principle, knowing that the big buyers and sellers move the market value?

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thats wrong question, big buyer/seller dont really move the market. you dont get what you want from the market, its the only opposite will make you money. be very humble to the market, its your teacher & you will always be the student.

all technical analysis will work when market is trendy, but all technical analysis will also fail when market is ranging.

all fundamental news can create market direction, but there are the times that it will also go against the direction whatever the news is saying.

Its a good question no doubt. As long as they arent the only market maker, as bramble says they couldnt operate completely efficiently in a cartel. But, in certain conditions I would bet that they do have to operate in some sort of "implied cartel" (I know whats going on, you know whats going on, we all know each other knows whats going on, its best for us all if we dont try to beat each other at the moment).

As soon as the situation dissipates though, its back to you scratch my back Ill stab yours !

That would be my guess, and it is a complete guess because, Im not one, I dont know anyone who acts as one, and guinness

TheBramble said:

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No. Thet may well be aware or not of all manner of things, but primarily they read market conditions and secondarily, attempt to create market conditions which suit their longer term aims.

They are up against each other (and institutions play their own little games with them all too ) - and almost certainly not interested in 'getting' us little retail boys & girls.

Not only do they not need a cartel - they couldn't operate successfully themselves within one.

Click to expand...

1Pipped said:

Its a good question no doubt. As long as they arent the only market maker, as bramble says they couldnt operate completely efficiently in a cartel. But, in certain conditions I would bet that they do have to operate in some sort of "implied cartel" (I know whats going on, you know whats going on, we all know each other knows whats going on, its best for us all if we dont try to beat each other at the moment).

As soon as the situation dissipates though, its back to you scratch my back Ill stab yours !

That would be my guess, and it is a complete guess because, Im not one, I dont know anyone who acts as one, and guinness

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These 2 posts pretty much describe how the bigger liquidity providers play. They know their markets inside out and will know when to take each other on and when to let them get on with it. They have only 1 goal - make money, and will screw over each other and whoever they need to to do so. However it's just as important for them to know when to step asside and let someone else play to avoid losing money or even join in with them.

I disagree with Bramble's point about them not being interested in retail boys and girls though. A lot of the time the masses who don't really know what they're doing (ie most market participants including retail, prop, banks etc etc) will be entering and exiting for similar reasons and so can be treated almost as one bad trader to take money from. So although retail players aren't targetted in particular, they are targetted as part of a bigger mass.

In smaller companies there was certainly not a cartel, most of the time the oppo was lookng to stuff youwith their duff stock rather than cooperate with you, when you see all the prices move at once it's becasue MM A has bought something and called it down, MM B doesn't want any so he calls them down as well and so does MM C, MM A again ends up on the bid so gets out of the way so they all appear to be moving in tandem but are in fact just playing a game of leapfrog basically.

Since the cartel agreements are never written down, there is always fear one is a bluffer and thus it seldomly works out. Only in case they are prosecuted, they are in a prisoners dilemma situation then, and they may act as a cartel.

Albert Carey said:

Since the cartel agreements are never written down, there is always fear one is a bluffer and thus it seldomly works out. Only in case they are prosecuted, they are in a prisoners dilemma situation then, and they may act as a cartel.

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Isn't the whole point of the prisoner's dilemma situation that it's more rational to act in self-interest from an individual point of view, even though this is worse from an overall perspective? This is pretty much the problem with trying to run a cartel - it's best for everyone if you all play by the rules, but for each individual member, it's best to break the rules, provided you get away with it.