The answer is that the trader with the 500,000 share order will not continue receiving orders unless he executes well. If he telegraphs his intentions on L2, he will not execute well. This is what leads to the games between mm's and daytraders.
Msft's average volume is over 91,000,000 shares! ...why would an MM have a problem buying or selling 500,000?. I'm not a day trader so Im curious... - nathan
Didn't say it was a problem to buy or sell shares. I said if they telegraph it by sitting on or riding a large bid while they are buying, they will probably have a worse execution for their customer or themselves than if they play the games with the ecn's, etc. If a daytrader can correctly determine when a mm has an order and can profit from it, he has in a sense frontrun the mm's order and caused the mm to pay a higher price than he otherwise would have. I mean does a mm add any worth to the equation, or is he just there to go in the market and buy half a million shares for his customer.(at any price). They get paid to perform. Perform means getting the best price.
Who are these "customers" you speak of?.. I would guess they're not average people like you and I...so who are they?..bill gates? ..lol - nathan
Institutional...fund groups, money managers, etc. When they place an order with a broker, they are a customer.
Anyone know how pipeline or liquidtrade figure into this? My understanding is that they are both institutional markets; are they somehow displayed on level 2, or are those trades even in t&s?
Thank you traders for your kind input in this subject, I hope other traders can benefit from this. What I am doing now on my entries say for example I want to go short, and see a lot of market makers on the bid, and the price is say 50.60, when the price gets there the market makers pull thier bids, and price goes to 50.59, I go short. I take that has a confirmation of my judgement that the stock is headed down. I have found this to work most of the time. Sometimes prices goes down and then jumps back up. I also confirm on the times and sales screen that market makers bids havn't been transacted. But I think there is more skill needed to really identify who are real buyers and sellers, or if the market maker is playing games. Also identifying the AX is another skill as it changed from hour to hour it seems. Any thoughts and contribution will be greatly apprecaited by experienced traders. Thx
In my viewpoint, it seems there's no definite relationship between large bid/ask and the direction. Sometimes it moves against. Sometimes it moves toward. Some daytraders can trade only by Time & Sales + Level I Quote. They ignore Level II quotes as they find out that they are here to confuse more than to help. Some daytraders make use of Level II quotes to trade too, in addition to Time & Sales + Level I Quote. Sorry, but it seems there's no (good?) level 2 order book. It seems we have to learn it all by ourselves. Also I find it hard to learn and practice. While we can read as many charts as possible, information/records about Level II quotes are very limited. If you find it is so hard to get this edge, the best advice is to abandon this edge since there're always other edges available for you to pick.