Forums - How Does Market Making Work? (discretionary)

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zbojnik

Registered: Dec 2011
Posts: 112

07-30-12 01:05 AM

Quote from thesniper:

I think 90% of profitable daytraders are just market makers. They just supply liquidity without trying to outsmart the market. The daytraders that try to outsmart the market are the ones that end up losing because they fail to realize the overwhelming randomness of the market.
The simplest definition of market making is buying at the bid with a limit order and selling at the ask with a limit order. But it can't be that simple otherwise everyone would be doing it.
So on what basis is liquidity supplied? Tape reading? TA? Momentum? RTM? I also can't imagine averaging up or down can result in profitable market making. I thinks most successful market makers basically trade like 20 stocks all in and all out using limit orders and with the benefit of low commissions and a fast platform. And if they get too much long/short exposure they hedge with futures. Is this correct?
Market making is as old as the markets, however I just can't find any good information in it. Please post some good books or blogs about the subject.
It's probably a dying business (the discretionary side of it) due to automation but still want to learn how and why it works.

So MM's get filled by the public then? Can they make money on a stock that has a 0.02 spread? Do they prefer a 0.02 spread or a 0.10 spread?

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Rationalize

Registered: Jan 2010
Posts: 784

07-30-12 02:23 PM

Quote from zbojnik:

So MM's get filled by the public then? Can they make money on a stock that has a 0.02 spread? Do they prefer a 0.02 spread or a 0.10 spread?

Depends on the price of the stock.

Ideally a 0.10 spread on a 0.02 stock

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Wide Tailz

Registered: Sep 2011
Posts: 1541

08-01-12 12:44 AM

Quote from thesniper:

I think 90% of profitable daytraders are just market makers.

And the 10%?

How very interesting how The Guru from the thread "why is the obvious, not so obvious" claimed that 90% of the time you BLSH / SHBL, 10% of the time you BHSH / SLBL.

Could these 10%'ers be intraday trend followers?

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