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Strategies & Market Trends : Trading For A Living -- Ignore unavailable to you. Want to Upgrade?

To: Jim Burnham who wrote (1513)	3/31/1999 8:56:00 PM
From: Eric P	Read Replies (2) \| Respond to of 1729

Market makers take advantage of every rule available to them in order to make money. I can't say that I blame them. Anyway, if I were a market maker the following would be one way I might take advantage of the rules to make money: Assume I have my market maker quote (symbol ERIC) posted on the bid in a fast moving stock as it is dropping fast. I would fill my 100 share order, then wait for 17 seconds (all programmed into my computer, of course!). After 17 seconds, I would further evaluate the direction of the stock and the market as a whole. If it appears that the sell orders are still accelerating I would drop my quote to the next level down. Then I would fill the minimum 100 shares on another order and wait for more 17 seconds to reevaluate the direction of the stock and market. This would continue until it became apparent that the selling pressure was subsiding in the stock and perhaps the sector/market,etc. Note: At this point, there is a very large queue of SOES market sell orders and SelectNet preferenced orders which are waiting for me to potentially fill. Easy pickings! I execute against all of them (perhaps 20,000 shares). This exhausts the remaining selling pressure and the stock now quickly rebounds one point and I make a tidy profit. Note: I am filling only a minimum 100 share execution every 17 seconds and backing away to the next level until the stock appears to be turning, then I can fill all of the large number of orders waiting in the system at the absolute bottom of the swing and maybe even go 'high bid' to shift the market direction for a swing up => then unload my shares for a nice profit. Basic market maker rules: 1) Fill small number of shares infrequently when the stock is going against you (i.e. you, the trader, are unlikely to get filled). Then, 2) Fill large numbers of shares as fast as you possibly can when the market is turning and moving in your favor (i.e. you will be filled and will become a sucker when your timing is off). Typical result: When you make a 'good' entry order at the right time: No Fill When you make a 'bad' entry order with bad timing: Quick fill! I hope this somewhat clarifies that, although the SOES and SelectNet systems are automated, you are not entitled to an 'automated fill' (i.e. guaranteed execution). Good luck, -Eric