Market Makers

Can some one point me to resources on market makers. I know what they are but I'm trying to understand their true power. Many times I'll read things like "the MMs won't let the stock go to x" or "the MMs will pull the stock down to x". I want to understand how true this is.

Thanks.

their true power is that they have a hell of a lot more money behind them than most traders
they in general tend to be banks or brokerages offering a firm bid or ask and their purpose apart from making money is to offer liquidity to the stock

a lot of liquidity in markets such as bonds and interest rates is provided by the locals at arcades and prop firms, usually spreading the markets either inter or intra market.

For example, a spreader might bid 100 in the bund and offer 200 in the bobl. Add together several thousand locals doing this during market hours, and add autospreaders into the mix and suddenly you have a lot of depth at multiple levels before you even add the banks into the mix.

or locals legging the futures outrights against the calendar spread will provide liquidity in a similar way.

So all these locals act as market makers (and receive rebates for doing so), but they arent taking any view on the market since they are totally hedged. They just want to take the bid/ask spread for a single tick or so.

Can't offer much insight into equity, bond or rates market making but if you have an FX specific question I'm happy to help.

GJ

GJ was it you that was going to write a "day in the life of a MM or local" or am I thinking of someone else

yes, I think it was! keep reminding him

I'd be interested in reading GJ's article too.

For example, a spreader might bid 100 in the bund and offer 200 in the bobl. Add together several thousand locals doing this during market hours, and add autospreaders into the mix and suddenly you have a lot of depth at multiple levels before you even add the banks into the mix.

Do people do anything similar in the FX markets? I tried spreading futures against cash but kept on getting legged out.

Not really any such thing as a local in FX as that's primarily an exchange term and the futures market in FX is most definitely the tail, not the dog. Guess they do have locals I suppose but the real market is interbank and in any case all my open outcry / exchange experience is basically in instruments other than FX.

I did intend to write a day in the life of a spot FX desk market maker but just never seem to have the time. One day....

GJ