It's becoming a winner take-all game, as virtu does OMM now too and is rapidly gaining market share. Short-term OMM now works within a paradigm that's very similar to stock MM (e.g. most of the OMM money is now made on delta, not spreading vol).
I agree. I also expect that most Equity market makers are involved in creations/redemption of the enormous number of ETFs out there so it is possible to move blocks of baskets into a hedged trade and move on.
Who says they don't lose money. They cover their loses by charging you as a retail trader and also betting against you. Stay away from market makers if you don't understand the game. I have been using Forexchief broker for a while, I understand that kind of broker and how they make their money. Trade and pay the commission - simple
So during the flash crash, would any market maker on that security take it on the chin? I assume there would be high likelihood of them posting big loses during these episodes.
lol buyers of last resort. Your post is completely devoid of useful info and almost entirely wrong. WTF are you here?
I doubt it. It's their business not to be hurt by such events and they have the technology advantage to get out in time. The only people who got it on the chin are regular investors who were robbed out of their shares in a blink of an eye. It's absolutely ridiculous to me that MM are allowed to be able to print money in normal times yet allowed to step aside during extreme times. Hopefully, the limit up/down circuit breakers will protect the public, but may actually make it much worse.
Are you now or have you ever been a MM? I heard Robert Morse was and was hoping he could chime in. It would be interesting to know.
That's because equity HFTs are not market makers in the old sense of that word. Anyone with the right technology can play this game, there is no regulatory obligation of "ensuring fair and orderly market" like in the old times. For example, I make markets in several securities where I have the analytical advantage without being registered as an MM. In options, it's a bit different, as you have to be a broker-dealer and have some compliance burden in exchange for some special arrangements. Also, in reality, things like flash crashes are so rare that they don't really take catastrophic losses. What really hurts is a breakdown in their models like it happened with Knight. When you're making millions of trades a day, tiny advantage translates to a large profit while tiny disadvantage translates to a very large loss. Both happen way before you know it.