Since make makers can submit subpenny order, for example, if a stock quoted at 10.01X10.2, he can buy at 10.0101 and sell at 10.1999. even if he is wrong, he can sell back to 10.01 or cover at 10.2, losing only 0.0001. that means, MM will never lose. As long as he can capture all the liquidity, he would eventually win all the money.
"Never" and "all" are strong words. There is an implied sophomoric notion the MM trades only in the moment and his only (another strong word) motive is teenies. Likewise, Joe Sixpack has another sophomoric notion the MM is a kindly order clerk performing a public service in maintaining a "fair and orderly market" and takes the subway home after a long day of benenvolence. The MM maintains an inventory posture in perpetuity. CEO's come and go but the MM is the entity most married to the stock. In general, buys wholesale and sells retail. Treats shares no different than eggs or fish. He may blow out small orders at a loss for the "greater good". This is why odd lots are almost always (another strong word) are filled first. Fractions of pennies are chump change.
why are odd lots filled first? I thought odd lot has no priority, and exchange does not like odd lot, and only fill them when the market is not so active.
It's not necessarily just market makers, it's any market participant capable of submitting a sub-penny order into a dark pool. But, you're exactly right, this is a low risk scam, for anyone with the capabilities. SEC rule 612 needs to be altered to curtail this abuse. http://www.defendtrading.com/subpennying.html
You know that joke about the Bull and the calf looking at a herd of cows. The calf says to the bull, "let's run over there and do one of those cows." The bull replies, "let's walk over there and do all of them". Same MO, different scenario.