If you were to buy a MM ID what would you do with it? What is the capital requirement to make markets? Besides making markets, what other advantages are there for having a MM ID? How much does it cost now to become a market maker? Thanks!
Market Makers are typically firms but with the ability to use ECNs, we can in some anecdotal way become market makers ourselves as we add and take away liquidity also...we just aren't "required" to keep a fair two sided market. So if stocks are tanking, we don't have to support them. Market Makers have obligations to step in front of faster selling in order to not let a major panic occur for too long.
Hmm, why do i feel some mm's are actually spurring the panic sometimes ;-) ? Maybe that's another good question for the (ex-) mm's. Do you have leeway to advertise in order to push a proprietary (or non-proprietary) position your way?
True, I'm not going to say the MMs are looking out for the best interests of open market traders..main point was more that they have tons more obligations to perform in an orderly market than you or I with access to the use of ECNs.
to answer your question, nothing. With ECNs, there is no point anymore. The only thing a MMID allows is is the MM to see who is interacting with them (ie Merrill Lynch or ARCA..) But these days, NASDAQ is 90% ECNS, so it doesnt tell you anything.. As far as capital requirements and costs, I have no idea, but I am sure it proababyl isnt worht it, unoless you plan on offsetting theses costs with LARGE customer order flow..
I think Facu means private question when he or she says super secret questions. Yes, keep your stuff private/secret, cover your tracks, and act like one of market makers.
I cant speak for the listed specialists, I believe since they are the "only" guy involved, they "are suppossed" (cough cough) to keep a fair market.. As far as NASDAQ, there were roughly 20-40 spec. firms in each stock so no one really had an unfair advantage and could manipulate the stock. It is true certain firms would have large order flow every day for weeks on end sometimes and you got to know who controlled the stock, but it was b/c of customer orders.. I am not sure what you mean by "advertise", but being a MM was alot easier tahan a day trader b/c you could try to force a small cap stock through a support/resistance level and cause a panic.. I had the capital to absorb being lifted for a few thoudans shares without worrying. Quite often, I would get lifted, and then I wouldnt move, and these people would turn around panic and hit the stock down causing a further panic, into my short covering... Of course I did get caught where someone larger was on the other side and did the same thing to me...
any BD can become a market maker by putting up a market and start trading it... the listed stocks are by open outcry.....the clerk is supposed to yell out and display bids and offers....as does the "crowd".....but if no one is there.................Mr. specialist can do what he wants.
great thread. the great mystiq of MMs is a fruit of imagination of losing daytraders during the bull bubble who needed "the man" to blame for their losses. nowaydays, the question of "o man I wish I was an MM" is as stupid as "O man how about trading futures prop". It comes from the notion that somehow being "professional" will help their trading. The matter of fact is... the markets have gotten so cost-efficient to the retail trader... the playing field has become ABSOLUTELY level. In Nasdaq stocks anyone can now "play MM' thru the use of ECNs without the responsiblities of "making orderly markets". And in futures retail traders get enough leverage to hang themselves 10 times, so there's absolutely no need for higher "futures prop" leverage. The playing field is now level and what matters is whether you can trade or not)))