What do you think the spot market makers at an investment bank do? The difference if you analyse position running, workflow etc will be less than everyone seems to think (and I've worked on a reasonably large (i.e. tier 2) bank spot desk so I do know a bit about what I'm talking about).
The fact is, some trades will be 'warehoused', some positions will be instantly cleared. But as the vast majority of retail trades are below 'market sized' amounts (i.e. below the minimum trade size threshold to clear in the voice brokers / EBS / Reuters, most of the time they are simply absorbed (as the only other option is to call out direct and it's embarassing to do that once every 15 seconds in $0.1m. Note this isn't the same as implying that the booky always trades 'against' you, they are just managing their books (flow and orders combined) at a more 'macro' level than the largely paranoid retail community assumes. Sure they do runs stops occasionally, but so does the rest of the market. Sometimes it's more in fear than greed.
And remember, most of the more reputable spread firms also see 'proper' flow from hedge funds, CTAs etc, in decent size and often very directional. So they're often more busy worrying about that business than anything else.
My $0.02 as always.
GJ
