I still don't like MMs4 Mar 2022 15:27
The real trouble is the MM, short for Market Maker. He (or she) is your friend in that they make the markets liquid and tradable. However, they trade for themselves and must also give a cut to the Bank. Their job entails organising a balanced and liquid market. That’s where the problem starts. They provide liquidity in exchange for uncertainty. Eventually, they had it. They WILL NOT keep losing money so that we retail traders win money without sweat. When a retail trader buys 100 shares, the market maker must sell you 100 shares, which means he is taking a short position. 100 shares doesn’t mean much but when everyone goes out and buys 100 shares, we would have a problem. When the market maker has too much at risk, he will manually adjust the prices to induce fear for day traders. He wants to know if you’re watching. You know you are watching. He’s watching if you react and he will keep lower prices to inject fear until you or other retail traders can’t take it any further. As a market maker, he will move the stock to levels where support and resistance are clearly defined. He will also move the price to levels of Bollinger bands, changes in momentum, or any place where he can attract both buyers and sellers. After all, the Stock Market is simply a disagreement among the prices of the underlying asset. A person would buy if he feels the stock is worth more than the Ask and a Seller would sell if he feels the stock should be worth less than the Bid. Here’s when things get interesting. Logically, Market Makers should raise the price of the stock if he is short and he needs to buy some shares for his inventory. However, he acts counterintuitively and lowers the price to get you the retail trader to sell. When you sell, he buys so that he can now have new inventory to sell to other buyers. In the Stock Market, prices on average drop three times as fast as when they go up. It can also be reasonably inferred that fear is 3 times as strong as greed. This market manipulation has been going on for a long time and while Market Makers cannot transparently collude to profit off of retail traders, their patterns for bid-ask adjustments can easily provide clear signals to show their intentions. For example, Market Makers can hypothetically widen bid-ask spreads to signal to the other market makers that he needs to buy shares and that he’s only temporarily bringing down the prices. Other Market Makers would understand and follow suit and once the shares are loaded, prices are artificially moved up again. The tough part for retail traders becomes knowing when there’s market manipulation and when markets are behaving rationally in accordance to the supply and demand.