RE: <<Steve, A question relating to your post #1447 (sorry to go back in time) You were discussing preferencing a MM. You said you might preference GSCO (if the stock was flying and you were buying) because then they would have to the trade. Can you give more specifics? Are you assuming that your price was at their offer? Or are you assuming that your price was above GSCO's offer - so if GSCO wanted to follow the market up they would have to do your trade. (I guess the other option is that I have got this completely wrong.) >>
A market maker must have a firm quote at all times. Thebest bidder and thebest offer make theinside, consolidated market. Lets say a stock is 10 to 10 1/4....Lets say GSCo is the 10 bid. There mightbe two others with him at 10. He is not necessarily the best offer. GSCO's quote could be 10 to 10 3/4. Who cares about his 3/8? We would buy it from whatever firm was offering at 1/4. Nonetheless, if you had permission from a customer to buy outside the quoted market or if it wasfor your own account, I could take GSCO up on his 3/8 offer. I would probably go after the guy at 3/8 if the stock was getting hot and their was no chance to get it at 1/4. Very often, in a calm stock, I could go to GSCO and bid them 1/4 for stock and they would be competitive with the inside market. This is how order flow works. The firm receiving your order is not necessarily bidding or offering but they want the order to try for the spread, a greater profit or to cross it in house. Nonetheless, they are not bidding or offering but want the order flow.
GSCO can't make money on the stock he bought at 10, he is 10 bid, if he cant sell it to someone. So whilehe isnt actively the low offer, you know he has takenin stock andmight want to sell it, so go to him. This is what experience as a traderis all about. There are an endless, endless situations that could come up. Like the Eniac computer in the movie War Games with Ferris Bueler. The computer that just wanted to play chess. Dr.Falken, a nice game of chess...seems like everyone I deal with wants to play Thermo Nuclear War...lol....
Good question..i hope I answered it.
regards,
steve@yamner.com |
