What is market maker?

Hi,

I am a fresh graduate in London right now. An electrical engineering degree, MEng - 4 year degree. Looking to get a trading job. Did a trading internship in IB b4. But didnt get the offer. (thanks to the current climate)

Just wondering what is the difference between market maker in prop firm and market maker in IBs?

prop firm i mean things like IMC...

Do they just create liquidity to the market to the clients (prop firm - who are the clients? brokers? i know IB has instiutional clients) and maintain the risk after creating the flow?

So not much risk-taking? mainly on maintaining a good risk-reward ratio and capture the spreads..., right?

In prop trading firm, do they pay you salary in a role of market maker? if so, how much do you think a firm like IMC or any firm would pay?

THANKS in advance

Prop firms are places where traders trade with the firms money. IBs make markets for clients, and also have prop desks.

I think you should be comparing the two concepts - "Prop trader" vs "Market Maker" rather than IBs vs Prop firms.

Proprietary trading - Wikipedia, the free encyclopedia
Market maker - Wikipedia, the free encyclopedia

There's a lot of information out there if you google it.....

Thanks Papa L,

I would definitely visit wiki and have a look..

So who are the client for the market maker in prop firm? As I understand, there are plenty of sales in IB. So the market maker in IB are just pricing for the sales mainly.

I am not familiar to the equity world. So in equity, does the option market makers are trading in the exchanges? or trading with the brokers?

And what is the difference between
1) market maker in prop shops and
2) market maker in IB?

in terms of clients or salary, stability of the job... etc.. actually any comments would be excellent!!

jackytam said:

And what is the difference between
1) market maker in prop shops and
2) market maker in IB?

in terms of clients or salary, stability of the job... etc.. actually any comments would be excellent!!

Click to expand...

Hey. Let me know once you've read the articles I've suggested and done some more research. If you still have questions then hopefully someone on the board will be able to answer them.

Help here is in abundance, just as long as you can prove you've done all your own homework first!!

as my understanding, prop trader means traders who invest on the firm behalf whereas market maker is to provide liquidity to the clients of the firm. So the market maker are taking the position oppose to the clients, right? the profit that market maker is making from investor crossing their spread, buy from higher than theoretical value that the trader's model or sell at a lower than theoretical value.

While prop traders make profit from taking a position (long/short) and speculate the market.

correct me if i am wrong.

But I want to know is there any difference in the nature of work between market maker in prop trading firm like IMC, Mako and IB like GS, DB...?

cheers

jackytam said:

as my understanding, prop trader means traders who invest on the firm behalf whereas market maker is to provide liquidity to the clients of the firm. So the market maker are taking the position oppose to the clients, right? the profit that market maker is making from investor crossing their spread, buy from higher than theoretical value that the trader's model or sell at a lower than theoretical value.

While prop traders make profit from taking a position (long/short) and speculate the market.

correct me if i am wrong.

But I want to know is there any difference in the nature of work between market maker in prop trading firm like IMC, Mako and IB like GS, DB...?

cheers

Click to expand...

Yep you're right. Although they'd want to buy lower than their model values it, and cross it higher than their model - but I'm sure that was just a typo on your part.

As for the nature of work I'm not too sure. Market making is market making - The only possible differences I could see is that IB's are more likely to have a broader client base, whereas others might only be allowed to make markets for other exchange members. Also, I doubt the IB's would offer any "work for nothing for 12 months and show us what you can do" type schemes, whereas these are quite common in prop type places.

Hopefully someone on here can help better than I have!

jackytam said:

Thanks Papa L,

I would definitely visit wiki and have a look..

So who are the client for the market maker in prop firm? As I understand, there are plenty of sales in IB. So the market maker in IB are just pricing for the sales mainly.

The clients are the IB's and/or Hedge Funds.

I am not familiar to the equity world. So in equity, does the option market makers are trading in the exchanges? or trading with the brokers?

Both. They make 'two-way' markets and trade on the screens i.e. Eurex, LIFFE etc and through voice brokers such as ICAP, GFI, Tullett's......

Click to expand...

.....

What is a market maker?

Simple, somone who's adept at picking your pocket without you often realising......

Thanks all for the reply..
So What should be the risk appetite for a market maker like?
I would say a good market maker should have good self-discipline(i assume it applied to all traders)

Should market maker be more risk averse? as you dont want to hold a large position to become a speculator...

Any more requirement to be a good market maker? i mean in personal quality.. like quick thinking and response..

I am going to an interview this week. So any comment would be much appreciated!!

jackytam said:

Thanks all for the reply..
So What should be the risk appetite for a market maker like?
I would say a good market maker should have good self-discipline(i assume it applied to all traders)

Should market maker be more risk averse? as you dont want to hold a large position to become a speculator...

Any more requirement to be a good market maker? i mean in personal quality.. like quick thinking and response..

I am going to an interview this week. So any comment would be much appreciated!!

Click to expand...

Personally I'd just be honest and say what you feel your own qualities are, and not try and find the answers you think they want to hear.

I think, in general, interviewers respect honesty, and if you bend your answers to suit, and they don't actually represent your true personality towards risk; you'll get found out soon enough and / or the job will not be one you will enjoy.

Just tell them you have no qualms against stealing and you'll probably get the job

get knocked back for a job did you?