Article Those Darn Market Makers

[T2W Bot]

We've just published a new T2W article called "Those Darn Market Makers" by Ryan Litchfield.

Quick Summary: Is the market maker really watching your every move? Knowing where your stop and limit order are? In this article the author tries to separate fact from fiction.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.

 

[ScottW]

I'd agree with the previous poster's comments.

 

[egro1egro]

Good article. I gave 9/10 only because the topic could be even more elaborated. For isntance, I didn't realise that there is a difference between shares trading and options trading in terms of how market maker works. Should it all be exactly the same principle no matter what to sell/buy?

Anyway, I liked it a lot. I agree that there is very little reason for MM to hunt for my person in particular. And they don't need to know about any particular stops in order to get a bunch of stops at support - it isn't a conspiracy against traders at all.

One thing is not clear to me is the role of market noise in these movements. Could stop-running be caused just because of market noise all alone or it is always achieved with some hunting effort from MMs? Sorry for silly question.

 

[mp6140]

i have a lot of years trading under my keyboard but like all traders, live in a sort of vacuum and have heard the stories and accepted them as true -- wonderful to see some long ago learned and forgotten information brought back under the light. Shall NOT forget this lesson again !

 

[garethb]

It's a good article and the main lesson is in the very last paragraph.

What does it matter whether it's fair or not, or legal or not? If you think something illegal or manipulative goes on at options expiration, or FOMC minutes or any other time or whatever, either identify it and learn to exploit it or avoid trading when it's happening.

It is important if illegal activities are making money at the expense of working people saving in good faith for their pensions. But as a trader nobody forces you to have a position. Take responsibility for your own trading actions and your own skill level.

Thanks

 

[henry766]

contradicts himself

 

[CityTrader]

Exactly the same with spreadbetting firms. Invite your friendly dealer out for a drink or lunch, let them become your friend not your foe. And as a former Equity market maker, I agree whole heartedly with Gammerjammer- you know the clients who are out to hurt you, and whilst there are a handfull of Spread betting clients whose size is bigger than the markets, most spreadbetting clients don't show up on the radar of the Investment banks market makers...

 

[charliechan]

no way near enough mention of inventory concerns, or buying order flow, or anything else people should be aware of should they wish to understand the market and how it operates. the authors understanding of how stop orders are handled between broker and exchange would also seem deeply flawed.

there is no useful fact in this essay. just opinion and second hand theory.

 

[bentsao]

A lot of discussion , few fruitful conclusion.

 

[Legion]

Liked the article, but a lot of people won't. I've traded in billions of dollars interbank and tiny amounts spreadbetting and I've found almost universally that your brokers and market makers treat you ok if you treat them ok (and as an FX interbank market maker I behaved the same way. I had customers who I knew were trying to hurt me (or at least weren't overly worried if this was the outcome) and I therefore traded defensively, and ones I trusted who were treated differently (especially when they left me stop orders)

But I always did this within a framework of trying to treat them as well as possible. in FX just as equities, seeing the flow's far more important than nicking a few pips here and there. Trust me on this.

My $0.02 as always

GJ

Hello, could you give an example please of what you mean by this, general outline, I mean is there a gentlemans unwritten code of conduct typically and what is it?

cheers.

Legion.

 

[rcanfiel]

educational and insightful

 

[mp6140]

While some of my thoughts went positive with my last post, as in all things truth and fiction intermingle in some strange manners.

One can say that these practices are relegated to the dustbin of history, but what I read into the discussion is if I DONT take my market maker to Smith and Wolenskies for diner a few times a month, then he has no care for me (we understand washing each others backs -- heck, its how inside information is spread, just as an aside !) but Im NOT gonna take him to diner, so does that mean, because I DONT have a good relationship with him, I better watch my butt ?

I have no fears because I prove daily that I know where support and resistance lay, and since i NEVER use stoplosses, that is not an issue either, but i REFUSE to exhonerate brokers and market makers cause I watch their antics constantly.

They may indeed NEED the retail client, but with the numbers of new clients entering everyday, they dont need them for LONG, and the very nature of trading against you means, by definition, they ARE NOT YOUR FRIENDS !

NAH --- I'll continue to know that my broker wants my money, as well as others and that we will probably not be seen together, around a big campfire in the woods, singing "Kumbaiyah"

my opinion, of course

enjoy and trade well

mp

 

[foredog]

An example of what Gamma was saying......

at about 1620 on the day before the Morrison bid for Safeway (that i dodn't know was coming) came out i sold a few to a broker we did a bit with but not too much, stayed small short as we didn't consider him too warm, and lo and behold......did our dough!!

We never made things in decent size to him after that because you never know if he knows something!