How's everybody doing. I trade on the nasdaq. This question has plagued me for the longest time, and I was wondering if any of you had any insight on the matter. Alot of stocks do some serious volume on the nasdaq every single day, but alot of the volume is fictitious. A few examples... JDSU, SIRI, SUNW, ADCT... Every now and then, a volume surge kicks in, and the stock proceeds to clear the bid/offer repeatedly, at the same price level, usually for a very short period of time. Prior to size becoming anonymous, one could see the same MMID smacking both the bid, and then the newly created offer. I've formulated a theory that they do this to catch a trader in an unfavorable position, but, what else could it be for? Do Market Makers get credited for generating these high volumes even if the stock isn't going anywhere? Does this kind of behavior happen on the NYSE, or is it restricted to the nasdaq? Some rebate traders profit tremendously from these discrepencies, and I assume someone has to pay out some fees somewhere down the line. So why do it? Is the reward for generating higher volume worth losing tens of thousands of dollars in ECN fees? Let me know what you guys think.
It is very funny to see that no one has replied to this post. It seems to me that it is one of the most interesting things that happen in the market as well. I suppose a lot of months have passed and you are much closer to the answer, according to who you are : ). Let´s see if someone tells us something new about this. In my humble opinion, I suppose that these huge amounts of shares bought and sold have something to do with the buying power market makers have, not only for them but also for the big amount of orders they receive from their customers. Also, as you say, their comissions to pay must be lower than the rest, if not paid by their customers also. One of the motivations at the back is chasing other traders as you say, smaller traders, specially big day traders, which will cause a momentum chance for them to capture the spread. But if a big refresher appears, they may try to kill or fill at the same price back rather than risking a big loss, and start the chase again. Anyway, it is amazing how in these stocks, someone buys or sells a big amount of shares ans starts to put huge fake bids or offers to push it in the direction he wants and to start the possible panic. Manipulation, one of the most important rules to take into account for being a trader, in my opinion. I liked the book by Christopher Farrell about surviving as a day trader... does anyone know what is he doing nowadays? Well, let´s see if this thread grows more than last months.... ; )
I think you are wrong. Not even all swifttraders nor their mothers and girlfriends together could do the big volume these stocks do every day, come on! There´s someone more out there
What I mean is, the fact that he is trading those stocks - "JDSU, SIRI, SUNW, ADCT" - means he works @ swift. No one else would even condsider those to be good trading stocks, unless you are in the rebate game. These stocks spend most of their day locked in a 1¢ range, with people shaving on the BRUT ECN down to .0005 bid/ask spread. You call that trading?
I'll let you guys in on the secret. When I was an intern at an investment bank trading desk, the traders told me that they were encouraged to do a certain percentage of the volume in stocks that they made markets in. It had something to do with "prestige" of being important, and they could also use that number to try and get block trade orders from institutions. Also, it kept them from being fired cause they at least they were doing something. So as a result, you have these market markers who will just clear the bid/ask with the sole intent of crossing volume so they can get their percentages up. You get a couple of firms doing the same thing in a stock, and of course you get tons of volume without any real price action. Now you can only do this safely on large cap, dollar priced stocks, cause on any other stock, there's too much volatility and you could get stuck with a large position. So of course stocks like jdsu do tons of volume. Its these exact same orders that allow rebate traders to make their money. I mean, who else would be hitting bids and taking the offers on these stocks?
what i find most fascinating about this note is somebody responds to a note 1 year and 7 months old that never had 1 response and now we get 4 in a day. just amazing
Don't forget the block trades he also mentioned! Almost always at a nice price for the MM-Investment Bank