Vadym:
Excellent post regarding 'Market Makers: Myths and Truths'
I'll throw in my 2 cents.
I agree that market makers are everyday people like the rest of us, trying to make a living. I don't think they are evil or nasty people. Probably a better analogy would be an opponent in boxing.
1) I think the biggest frustration with market makers is caused by the heavy bias in the Nasdaq rules that favor the market makers. The 17 second rule and the 100 share quote limit are huge advantages for market makers who are supposedly responsible for providing liquidity and maintaining an orderly market. I believe that being a market maker is much easier than being a daytrader as a result of these rules. In addition, the access to customer order flow also gives the market makers a virtually risk-free method to make money. I wish I had access to these privileges.
2) In the past, I have had several experiences where I attribute market makers for intentionally giving me a 10 share fill off of my 1000 share ISLD. However, he is just doing his job, and within the rules of the game. He probably figured that after I spent a full (~$20-25) commission for a 10 share fill, that I would just go ahead and pay the spread and hit his bid on the remaining 990 shares. Unfortunately, I must admit that I'd probably do the same thing in his shoes. No hard feelings. Take no prisoners.
3) In addition, I think the activities of large and successful daytraders are often mistaken for the work of market makers. The bottom line is that daytrading is an extremely difficult profession and market makers are a very convenient place to lay much or even all of the blame. Your point is well taken that as daytraders, we must take responsibility for our own profits and loses. If the game is not fair, and we cannot find a way to win => then we should quit and get another job. The blame game is a sure-fire path to failure in daytrading.
4) Daytraders (including myself) can often get frustrated when their order is alone at the inside bid or ask. Then several trades get executed at their price, but they don't get a fill. Frustrating? Yes. Illegal? No. People tend to forget that market makers typically make their money from making the spread on their order flow. When they receive a new market order in a stock, the market maker has the option of executing against the best bid or ask in the stock (i.e. your order) OR simply filling the order themselves by matching the price of the best bid/ask order in the stock. This is typically the cause when you see many trades executed at your price, with no fill on your order. Simply a market maker following the rules and trying to make money for his firm.
I hold no grudge against market makers. I do, however, feel that the Nasdaq rules should be changed quickly to make them equitable to all traders. Since the market makers no longer satisfy the function of providing additional liquidity, they should not have any special privileges. What we need is one huge SOESable ECN, where all orders are 'real' and the first matching order received will get the fill and the quote size immediately updates to the new remaining size. No market makers needed. Let them fill orders like the rest of us.
Just my opinion,
-Eric |
