I asked about prop. trading vs. market makinng a couple of times, and am getting a better understanding between the two. One question that's always bugged me is, why do prop./day traders hate market makers so much? (i've read that in a bunch of popsts, when comparing MM working at various IB to prop. traders)? How about financially? Who would be better off? and what about job security?
Prop traders hate market makers because: 1. They get a good salary, benefits AND percentage of profits 2. They know the order flow and have an advantage over prop traders 3. They have huge capital and inventory at their disposal and can engage in price manipulation to shake out prop traders In other words, prop traders hate them because they want to BE them!
If market makers make bogus markets, they are defrauding traders -- retail, prop, and otherwise. It's that simple. MM represent the entrenched institutions, and there is a measure of security in that.
you really need to clarify what kind of market maker. equity, equity derivatives, credit derivatives, bonds, currencies, etc. i believe on this board, MM comments typically refer to nasdaq trading. personally, i'd stay away from that as the game isn't what it was for the firms that took advantage of order flow now that stocks tick in penny increments. take a look at NITE stock as a good example of how the playing field has leveled. however, if an i-bank is going to offer you a job as a market maker, i'd take it. it would be a great way to learn the markets with real potential. as an example: the latest edition of FOW magazine did a salary survey (london) of the credit derivatives market. the salary range for associates is: 55-100 pounds base + 150-300 pound bonus. Managing Director: 120-170 pound base + 850-1.5 million pound bonus. This is credit derivatives but it shows the potential of working at an institution. I would venture a guess that most prop traders don't come close to the associate or even analyst numbers (which i don't have available). Comments regarding knowledge of order flow/manipulation are grossly exaggerated. Ditto on the comments on capital.
Thanks for the replies ... I'm also assuming the route to becoming a full-fledged trader is more difficult (or more time commitment) than prop. trading. From what I understand MM (let's say NASDAQ trading) one would start as a Trading Assistant - learning the ropes, tactics, etc. before getting a sector of stocks to trade. Whereas (from my readings here) prop. traders can generally start trading the same month they join the firm! (after a week or so of successful paper trading) - both situations assume no prior trading experience. Also, I'm leaning towards the fact that MM may not be as "intellectual" as prop. trading. - ofcourse i could be totally wrong (ie., it's not rocket science, whereas in prop. trading some brain power might be needed??) For examle, manipulating stock ticks may not need that much intellectual abilities ... i'm not sure. I'm just attracted to it because of what was already stated ... salary+desk profit, order flow foresight, benefits of working at an Ibank? ... sounds like more job security (yet, i hear a lot traders are getting laid off these days?!?)
One of the best things about working for an I-bank is that you will meet a bunch of people who may help you in the future (i.e., the contacts).
Haha. That's probably the best set of explanations I've heard. But I still don't understand this "hate/love" relationship that prop traders have with MMs. Market-making and "true" prop trading are TWO TOTALLY SEPARATE animals. Market makers, by their very function, is to provide LIQUIDITY to institutional fund managers! True prop trading is more of trying to earn excess returns in the market. So, in a sense, prop trading is somewhat similar to money management except on a shorter horizon/time frame. -99