Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: WryBoy who wrote (7458)	3/15/2000 10:36:00 PM
From: LPS5	Read Replies (1) \| Respond to of 18137

As spreads have decreased, the trading practices have shifted from pure buy-into-the-dip or sell-into-the-rise market making to the practice of effectively position trading the inventory. "One thing I've wondered is whether or not MM's can cover their own positions ahead of an institutional order that hits their desk." The market maker (or whatever trader handling the order) has an obligation to take care of the customers' order first. Frontrunning is a violation of NASD rules, and Head Traders plus Compliance Departments keep an eye on that sort of thing by monitoring order tickets and electronically auditing purchases and sales. Market makers go short fairly infrequently. It is a well known and documented fact - and, in fact, a market indicator - that short selling (with exceptions, of course) is typically the province of the retail investor and, therefore, typically a contraindicator. When market makers are short, it's typically because they are filling buy orders quickly in a thin-float stock and wind up short inadvertently. There are lots of conspiracy theories, and they range from villanous market makers massively shorting stocks to purposefully blind regulatory bodies - and, if you choose to believe them, there's not much more that can be said - but I will tell you that if it does happen (and it would be equally naive to say that it never does), it's very, very rare. "Conversely, if the MM is already long the stock to some extent, must they use their current inventory toward fulfilling the order, or can they, if they chose to, buy it all from the market, leave their longs in place, and thereby profit from the order?" Whether the firm the MM works for is long or short the stock - and to be net short is unusual, let alone to purposefully go short an issue - they do not use that stock initially to fill an order, unless it's a very small order. The meat and potatoes practice, as I've already said, is to get as much as possible as you can from the open market and THEN from institutions or other firms which you have a relationship with. If the order is small, the market is goosed, or there's only a little left to go, THEN they'll print out of inventory. LPS5