Making the Market in a simulator vs. real life; Market Making Stocks?

I recently started training at a prop firm which emphasizes a “make the market strategy”. I was wondering if any of you have tried this on a simulator and then did it with real money. Is there a big difference, not psychologically, but in terms of execution? Guys here are making decent monopoly money on the simulator with this strategy, but I am not convinced that they can do this in the real world because the execution wouldn’t be the same. I think they get the best possible bid/offer (depending on the side) on every trade. So basically, what is the difference between the executions in a simulator in comparison to real life (the platform is Lightspeed Trading)?

Secondly, what are some good stocks to try to “make the market” on? What are their characteristics (i.e. big spread, liquid, price is consolidating, etc.)? I tried to do this strategy with Google and some other tech stocks, but it didn’t work well. Any suggestions? What should I focus on when I practice this strategy? What are some reliable indicators? Are the Level II orders the most important? Finally, is there a difference between NYSE stocks and NASDAQ stocks considering the specialist/market-maker business?

 

Hi, Monty. It's quite amusing to me. They won't be able to buy the bid and sell the ask in reality. They should be adding $.01 to each side to see how they're really doing. I'm sure if you do it that way, you won't make anything.

The other thing is that market makers have slowly moved toward's positions trading, as there $0.01 spread is miniscule compared to the $0.05 they were enjoying prior to decimalization.

If you were really making a market, you would have two orders in hand, one to buy and one to sell at different prices, that could be crossed simultaneously. Since you don't, this doesn't sound plausible.

I believe real market makers have capital requirements upwards of $10 million, and they do have a slight edge with buying bid and selling ask. If you don't know if you're a market maker, you have no shot and no business trading this way.

 

The only thing the simulator is good for is getting used to the software. Fills will be completely unrealistic. When I make a market it is in high priced, illiquid, low volume stocks.

 

How about market orders... In a fast moving stock, execution should be realistic in the real world right?

 

Realistic with a stock that has $0.01 spreads most of the time.