I was just offered an assistant trader position with a proprietary group that makes markets. Hopefully trading in a few months. My question is how does a "proprietary market maker" earn his living? I'm assuming there's a draw from p/l, but how much can these guys stand to make buying the bid and selling the ask all day long? thanks, money
The term "Proprietary Market Maker" is pretty general. I will assume that in your case, it means being employed by Herzog or Knight or similar. You will learn to observe a few stocks (perhaps many secondary stocks to begin with), and watch for any unusual order flow activity. You will have access to the Firm's previous trading in those stocks to see hisotrical pricing levels. When you see higher bids or lower offers, you will give a basic report to your superior, who will either begin trading (taking long or short positions), or he/shw will give you a specific outline for your participation. Most of this done based on the order flow, and whether or not your firm is one of the primary MM's. Your personal success depends heavily on your ability to take direction, at least for the first couple of years. You will be given some discretion after a period of time, at which time you may be able to "prove" yourself and advance. My friends tell me that a pretty "basic" salary to begin with, and perhaps a bonus based on performance of your group/team. One thing was mentioned to me that I found interesting, but not all that unusual. The middle level "traders" really don't want any newcomer to show them up, and have even gone so far as sbaotaging new "stars" as they see it. So, I suggest being very humble with your immediate supervisors, have a couple of beers, but don't upset the proverbial apple cart. If you can find ways to impress the "big boss" then be subtle when doing so. If you have a different understanding of the term used for your possible new position, let me know., Good luck in any event! Don
you are taking the other side of retails trade to make an orderly market... as ninety percent of these orders are day trades and weak hands - you run the market the oipposite was the retail money is flowing. making tiny increments over and over...
Thanks for the replies.. Market makers function the same way in the options market? How so, considering that options do far less volume? or does the added volatility make up for the disparity in trades?
options market makers are different than liquidity provider market makers in my opinion. options market makers make two sided markets off off percieved values based on greeks then lay off the risk with an underlying hedge. in theory you do this all day make some here , some there and then run your position and see what you need to level off. its a great job and much better than being a liquidity market maker imo as you learn to look at variables besides just up and down. this is an excellent way to learn how to trade and being versed in options will set you above 99% of the street. that being said it sucks when a adm/goldman/swissbank/ubs gets an itch on a strike and you buy it from 8 down to 4 as your "sheets" show fair at 8.5. ive been down this road in gold and beans. good luck and have fun
Well Don's description of a MM is accurate, but dated. It has all changed since super soes and decimilization. I used to be MM b/4 they all but closed their doors. Now a few firms have a skeleton drew of Nasdaq MM's who more or less "oversee" the electronic trading and are assigned to overseeing sectors of the market. Now you really dont have any edge to feel for where the market is going (select net) , or any spread to work with, like the olden days. You simply for the most part work customer orders and tack on a small agreed upon markup on the average price. With technology what it is these days, retail and institutional can cheaper trade their own strategies with direct acess, so market making (at east NASDAQ) is in most cases barely profitable. the only firms that make money on this have really cloyal client relationships, b/c the clients could easily trade their flow in better more effective ways.