Nat, RE: Just curious as to what is your experience in trading floor(s) and how MMs play the game.
Nat, my first job was in Sales and Trading on Wall St. I was also an analyst for a few years, before moving to the buy side to manage money.
Market makers' activity is one of the most misunderstood aspects of the market, at least as far as retail investors are concerned. Almost all market makers NEVER position a stock. A market maker trades a stock and pockets the spread, nothing more. If fact, at most Wall St. firms, if a market maker carries a position for any extended period of time, he most likely will be fired, not praised, no matter what the P&L. Not quite the conspiracy that most people imagine. As spreads have narrowed over the past few years, more and more firms are getting out of the market making business. The only reason most Wall Street firms even make a market is stocks is as a service to customers. It is not a strong profit center.
But brokerage houses and MMs make money not by holding long. Rather they would like to see a steady stream of cycles (either overall market induced or manipulated through various means like news media, analysts, rumours, guru's opinions etc..).
Wall St. firms do not profit from the cycles of a stock at all, they profit from the commissions. A Wall St. firm has no more idea of where a stock is going than you or I do.
Of course, note that any discussion of market makers is completely irrelevant to LU. There we're talking about a specialist. |
