market maker doesn't give a sh1t about whether counterparty is making money or not-just himself. if he can trade out of the position immediately then all the better otherwise he will hedge and just try and make the difference between bid and offer at some other point.
Skill Leverage
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That is what I was trying to say in my first couple of posts, but you fudge-packing turd burglars wouldn't listen. You're all gay, I tell you!
*SL rides off laughing into the sunset, on a horse shaped like a c0ck*
*SL rides off laughing into the sunset, on a horse shaped like a c0ck*
TheBramble
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OK fair enough. But if I ever lose a trade, does that mean my Market Maker will refund my Broker who will then pass on their hedge winnings and clippings to me plus interest and I can reset my ECN with a new IP and become someone else?
Skill Leverage
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My lifetime goal is to open a brokerage where you pay no commission on losing trades but double commission on winners. I expect to have 100% market share by the year two thousand and fist me.
Skill Leverage
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Yes I do realise that I would end up with a client list of ******s who can't trade, but you've got to have a dream.
TheBramble
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Do you think Sharky would sell you the t2w mailing list then?
Skill Leverage
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He'd bloody better, by definition he'd be getting zero commissions on every trade he made... 
GammaJammer
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GammaJammer
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Ok perhaps at this point, all equine genitalia references aside, perhaps schopen could tell us what the question was REALLY about. I promise to try and answer it properly if it's phrased less ambiguously.
Scouts honour and all that.
GJ
TheBramble
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creep
GammaJammer
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misery guts
Technically Fundamental
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Pair of basturds
GammaJammer
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Accountant.
(sorry - uncalled for)
(sorry - uncalled for)
TheBramble
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mods! banning in order.
Technically Fundamental
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Tbh I'm hurting too much to form a witty retort.
Et tu GammaJammer
Et tu GammaJammer
I think I just wanted to know what MM's do. I know they 'make a market in an instrument' but that is just a string of words. I'm still processing a lot of what's been said and will re-read. I think if I understood their hedging I would understand better. PS had a job interview today and they want to see me again tomorrow Yeay! Not trading though - ah well I can dream..
TheBramble
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Ns
GammaJammer
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In a nutshell Goose has it. He's not trying to be facaetious (sorry poor spelling). A Market makers job is to provide an orderly and tradeable market in an instrument, such that others may buy and sell, by providing liquidity to that market. Liquidity is the CAPACITY for someone to buy or sell.
Thus you could (verly loosely) think of a market maker as a shopkeeper. They have in their mind a fair value price for, say, a pack of batteries. They will speak to various people, some likely to be sellers (sales agents for the battery company, cash and carry wholesalers etc etc), some more likely to be buyers (usually customers to their shop). If the price of the batteries at fair value is £1.00 they might make a market effectively of say £0.80 / £1.20. That is, at any one time they'd be willing to buy them from the sales rep at £0.80 if he popped his head round the door, and they'd be willing to put em on the shelves with the little pricing gun reading £1.20.
Of course, if the batteries aren't exactly flying out the door at £1.20, and the shopkeeper has boxes and boxes of em out the back, he has a potential problem.
So he leaves his assistant in charge and steps outside into the sunlight. Stretching his legs, he has a little stroll down the high street. To his horror, he sees that the other small shopkeeper is selling the same batteries at £1.15. And the big out of town supermarket has even put an ad in the bus shelter saying they undercut that, knocking them out at £1.09.
So he reduces his offer to £1.12 for now. He's not trying to compete with the supermarket, he just wants to be the best price on the high street. And when the sales rep calls the net week he tells him that realistically he can only pay £0.75 now. The sales rep declines to sell him any there, but the good news is that the batteries are selling well at this new price, and pretty soon he's running low.
Taking a quick trip to the cash and carry he is shocked to see that the battery aisle is almost empty. People are literally carting away trolley loads of the things. He sees his mate who runs a shop nearby and asks him what's going on? His mate replies that there's been a strike at the battery factory, and also a huge fire at their distribution centre. So there are maybe two days worth of battery stocks left in the country.
Seeing a chance for a good outcome here, our guy also loads up his trolley. In fact he loads up with 5 trollies worth until the shelves are empty of the AA and AAA batteries he stocks. These are priced at a very reasonable £0.85 a pack
Then, when the sales rep for the battery fails to show the next two weeks running he knows he's onto a winner. Sure enough, the ad from the supermarket in the bus shelter is pulled, and the shop down the road now has the batteries at £1.18. So he lets a little of his stock go back on the shelves at £1.15 and they're gone within a day. SO he tries a little more at £1.15. Those don't last a morning. Now he's starting to sense a pattern. And when his mate from the other shop pops in and asks to buy a carton as he already sold out, he knows that he's doing well. He sells his mate a carton at £1.00, as he's grateful to his mate for the heads up that made him do the trade in the first place. But the rest of the batteries go out on the shelves at £1.25, £1.30 and eventually, once the story makes the papers regionally, he's still selling at £1.45.
Not only that, but as he seems to others to be a guy with his ear the ground and a steady supply of batteries when others haven't, he's now getting people asking to buy in bulk. He's less keen to do this at first, but then, one day, he reads a report in the local rag that says that the battery company have made great strides in repairing the regional distribution depot, and that the batteries should be available soon.
No-one else seems to have seen this yet. So when the owner of another, larger store asks him if he can sell him some batteries, he says 'sure - I can spare you a few. How many were you thinking of'. The larger shopkeeper tells him. It's a lot of batteries, more than he actually has left. So he hits on a plan.
"Sure, I can sell you some - after all we have to stick together in the face of the supermarkets right?" But I don't have everything now. So how about I sell you three pallets now, and the remaining 7 pallets for delivery tomorrow. And if you pay in advance, I'll sell them to you at, say, £1.30 rather than the £1.45 I have them on the shelves for now.
The larger shopkeeper happily agrees, thinking that he has a small edge on the trade. And for a day he does manage to sell some batteries at £1.45. But not as many as he'd hoped for.
The next day the small shopkeeper hears a tinkle and the door opens to reveal the sales rep again. He's very apologetic about the recent hiccups, but states that the stock is starting to roll in now. Unfortunately, it's still a bit scarce, but he can let the shopkeeper have 5 pallets for £1.10. It's a little more than the shopkeeper had been paying previously, but he does have an obligation to meet that day (to the larger shopkeeper) so he agrees.
He then goes round to the cash and carry place, as he's thinking they were possibly the sales rep's best / largest customer and therefore first call. Sure enough the shelves are, if not full, then certainly a lot less bare. So he buys another ten pallets, this time at £0.95. Happy days. He then delivers the 7 pallets to a somewhat sombre shopkeeper at the large convenience store who, having also been to the cash and carry that day, had not taken long to realise that he'd bought at the top of the market. Our little guy immediately slashes the batteries to £1.20 and sells into the last of the uninformed buying by hoarders to power their dvd remote controls etc, who had either not realised things were getting back to normal, or who simply needed the batteries now on account of the fact that they couldn't be arsed to get up off the sofa and waddle over to change the channel manually.
Sure enough, within a week things are basically back to normal. Fair value for the batteries is back at around £1 a pack. But the little shopkeeper, having juged supply and demand perfectly, and been nimble enough to do something about it, had profited handsomely from the move .
THAT is market making. Supply and demand. That's all it is folks.
Hope this helps.
GJ
Thus you could (verly loosely) think of a market maker as a shopkeeper. They have in their mind a fair value price for, say, a pack of batteries. They will speak to various people, some likely to be sellers (sales agents for the battery company, cash and carry wholesalers etc etc), some more likely to be buyers (usually customers to their shop). If the price of the batteries at fair value is £1.00 they might make a market effectively of say £0.80 / £1.20. That is, at any one time they'd be willing to buy them from the sales rep at £0.80 if he popped his head round the door, and they'd be willing to put em on the shelves with the little pricing gun reading £1.20.
Of course, if the batteries aren't exactly flying out the door at £1.20, and the shopkeeper has boxes and boxes of em out the back, he has a potential problem.
So he leaves his assistant in charge and steps outside into the sunlight. Stretching his legs, he has a little stroll down the high street. To his horror, he sees that the other small shopkeeper is selling the same batteries at £1.15. And the big out of town supermarket has even put an ad in the bus shelter saying they undercut that, knocking them out at £1.09.
So he reduces his offer to £1.12 for now. He's not trying to compete with the supermarket, he just wants to be the best price on the high street. And when the sales rep calls the net week he tells him that realistically he can only pay £0.75 now. The sales rep declines to sell him any there, but the good news is that the batteries are selling well at this new price, and pretty soon he's running low.
Taking a quick trip to the cash and carry he is shocked to see that the battery aisle is almost empty. People are literally carting away trolley loads of the things. He sees his mate who runs a shop nearby and asks him what's going on? His mate replies that there's been a strike at the battery factory, and also a huge fire at their distribution centre. So there are maybe two days worth of battery stocks left in the country.
Seeing a chance for a good outcome here, our guy also loads up his trolley. In fact he loads up with 5 trollies worth until the shelves are empty of the AA and AAA batteries he stocks. These are priced at a very reasonable £0.85 a pack
Then, when the sales rep for the battery fails to show the next two weeks running he knows he's onto a winner. Sure enough, the ad from the supermarket in the bus shelter is pulled, and the shop down the road now has the batteries at £1.18. So he lets a little of his stock go back on the shelves at £1.15 and they're gone within a day. SO he tries a little more at £1.15. Those don't last a morning. Now he's starting to sense a pattern. And when his mate from the other shop pops in and asks to buy a carton as he already sold out, he knows that he's doing well. He sells his mate a carton at £1.00, as he's grateful to his mate for the heads up that made him do the trade in the first place. But the rest of the batteries go out on the shelves at £1.25, £1.30 and eventually, once the story makes the papers regionally, he's still selling at £1.45.
Not only that, but as he seems to others to be a guy with his ear the ground and a steady supply of batteries when others haven't, he's now getting people asking to buy in bulk. He's less keen to do this at first, but then, one day, he reads a report in the local rag that says that the battery company have made great strides in repairing the regional distribution depot, and that the batteries should be available soon.
No-one else seems to have seen this yet. So when the owner of another, larger store asks him if he can sell him some batteries, he says 'sure - I can spare you a few. How many were you thinking of'. The larger shopkeeper tells him. It's a lot of batteries, more than he actually has left. So he hits on a plan.
"Sure, I can sell you some - after all we have to stick together in the face of the supermarkets right?" But I don't have everything now. So how about I sell you three pallets now, and the remaining 7 pallets for delivery tomorrow. And if you pay in advance, I'll sell them to you at, say, £1.30 rather than the £1.45 I have them on the shelves for now.
The larger shopkeeper happily agrees, thinking that he has a small edge on the trade. And for a day he does manage to sell some batteries at £1.45. But not as many as he'd hoped for.
The next day the small shopkeeper hears a tinkle and the door opens to reveal the sales rep again. He's very apologetic about the recent hiccups, but states that the stock is starting to roll in now. Unfortunately, it's still a bit scarce, but he can let the shopkeeper have 5 pallets for £1.10. It's a little more than the shopkeeper had been paying previously, but he does have an obligation to meet that day (to the larger shopkeeper) so he agrees.
He then goes round to the cash and carry place, as he's thinking they were possibly the sales rep's best / largest customer and therefore first call. Sure enough the shelves are, if not full, then certainly a lot less bare. So he buys another ten pallets, this time at £0.95. Happy days. He then delivers the 7 pallets to a somewhat sombre shopkeeper at the large convenience store who, having also been to the cash and carry that day, had not taken long to realise that he'd bought at the top of the market. Our little guy immediately slashes the batteries to £1.20 and sells into the last of the uninformed buying by hoarders to power their dvd remote controls etc, who had either not realised things were getting back to normal, or who simply needed the batteries now on account of the fact that they couldn't be arsed to get up off the sofa and waddle over to change the channel manually.
Sure enough, within a week things are basically back to normal. Fair value for the batteries is back at around £1 a pack. But the little shopkeeper, having juged supply and demand perfectly, and been nimble enough to do something about it, had profited handsomely from the move .
THAT is market making. Supply and demand. That's all it is folks.
Hope this helps.
GJ
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