What percentage of the market are independent day/swing traders? Who comprises the rest of the field? When a stock gaps-up on news or an upgrade, who is buying at 9:30? Not the day-traders...every book we have read teaches us to prepare to short that irrational morning rise. And who listens to the sell-side analysts? Not the day-traders (except to play the reaction). Seriously, don't the large institutional investors have their own analysts? Who is in the game who literally believes the sell-side analysts and follows their advice - it has to be someone... And what is the age, education, and experience of the guys on the 'other side' of the L2 when I am trading SONS or OPWV? Are they recent business school grads doing entry level work while the real pros work with options/futures/currencies etc.? Are their tools and info vastly better than mine? What is Level III and does it put us at a disadvantage? Sometimes action slows and I imagine that the MM's are talking to each other on the phone and setting-up a plan, do they do this? Can they see in real time how much of the offer is short? What is the time frame of the other players? For example, say 1M shares is traded in a particular stock on a day, how many of those shares were traded as a part of a long term plan? How many of that 1M were scalped? So much to wonder about...
>When a stock gaps-up on news or an upgrade, >who is buying at 9:30? Not the day-traders.. >every book we have read teaches us to prepare >to short that irrational morning rise. > >And who listens to the sell-side analysts? >Not the day-traders You are giving WAY too much credit to day traders. JB
I wouldn't worry too much about the market makers themselves. Remember that each market marker is responsible for at least several stocks so alot of MM activity is completely computerized. Furthermore, there is no grand conspiracy among the MMs. They often don't know each other's intentions, although they can communicate via selectnet and other means. Most market markets are great traders, but no better than some of the people on this board. Their true advantage comes from seeing order flow from retail investors and institutions. Without this, they're blind.
thanks to all who have replied so far... Htrader, it's not that i am worried about the MM's. I just want to know more about them. In fact it often occurs to me that in every transaction, one person loses and one person wins. Especially when I am on the winning side of a trade I wonder about the other person and why I was able to see something that he didn't. Of course the opposite is true when I am on the wrong side... I just wonder about who's out there and, being insiders, what inherent advantages they have over us? How do they communicate via Selectnet? What would they communicate? I often see prices move but can find no cause at Briefing/Yahoo/PR/BizWire...even a few days after the fact. So I conclude that there is a significant level of communication occurring to which I am not privy. I understand things from an independent trader's point of view, but I am isolated sitting in the middle of IN. And I have no 'floor experience' like many on this board. When you say: "Their true advantage comes from seeing order flow from retail investors and institutions. Without this, they're blind." What do you mean? Do they see this somewhere OTHER THAN L2?
Roger2, Selectnet was originally designed so that market makers could preference each other with various buy/sell orders. Only in recent years has selectnet seen heavy daytrader use. As for order flow, there is a HUGE amount of informatiom that MMs see beyond level 2. For example, almost all retail online brokerages like etrade sell their order flow to a market market(like Knight). These orders don't show up on level 2 and are sent straight to a particular MM, who now has an inside view on supply/demand. In addition, market makers also see the queue of selectnet and SOES orders directed towards them. Before the advent of supersoes, MMs could often hold these orders for a large amount of time and execute them at their leisure. Perhaps the biggest advantage of an MM is knowing about institutional order flow. If a hedge fund wants a million shares of cisco, it doesn't post that order on level 2. Rather it calls up goldman and asks for an offer. The goldman MM working cisco is the first to know about that and now has a great inside read on the market. I'm just touching the surface, and this may seem like alot, but remember that there are many MMs for one stock, who must compete against one another. This might be one reason why so many traders prefer the NYSE, where its just one specialist per stock. Htrader
Roger2: "It often occurs to me that in every transaction, one person loses and one person wins. I wonder about the other person and why I was able to see something that he didn't. Of course the opposite is true when I am on the wrong side." I think asking these types of questions goes a long way in developing a much better understanding of the markets and leads you in directions of research that can be very profitable.
Honestly, I hesitated a few days before addressing this post. I think one question you're getting at is, are there common circumstances where information is traded or released to only a select group within the industry? YES. Do they trade on this information prior to the official release? Yes. Does it happen everyday? Yes. Can an individual trader track this info? Yes... to an extent. Your answer lies within your charts. Big money always leaves a path and if your technical skills are up to par clues will arise. Will you know exactly what's going on? Probably never until the official release (usually the next day or two). Not to sound ridiculous because this is far from it, but remember..... Teamster (m@#$%a) involvement in the stock market is more predominant than most realize... although it's rarely talked about. Makes one wonder? As Htrader indicated there is certain resources available that MM's use to transmit buy/sell interest such as Autex.