In Harris' book "Trading and Exchanges" he says the market makers make money off of uninformed traders through the spread which compensates them, and they lose money to informed traders. However, when I look at US equities traded on NASDAQ where the bid-ask spread is typically a penny, almost all of the traders are (>90%) "informed", in that the "true price" tends to be higher a few milliseconds to seconds later after a trade has actually been printed. In other words, if the trade touches NASDAQ (the ECN specifically), the price almost always moves that way, at least in terms of the next quoted market. So this leads me to ask the following questions regarding penny-spread stocks : Does this imply that market makers cannot expect to make money from the bid-ask spread in US equities, without 1) using internalization or payment for order flow schemes, or 2) all of the market makers essentially have some sort of short-term alpha model and do not make money from the spread in any way? Even with the rebate, the rebate is only awarded in the event of being incorrect short-term, meaning there is some slightly longer-term alpha in place. I guess I'm trying to figure out in a way whether rebate traders on exchanges like NASDAQ are effectively forced to play a reversion to the mean game -- and whether the GETCO/Knight/Barclays type operations only are able to exist in US equities as market makers because they have secured gobs of uninformed flow through side agreements unavailable to Joe Public Proptrader. I'm trying to reconcile Harris' claims with my observations about NASDAQ trading and the spread in the thick and liquid stocks.