Do market makers in normal trading environment actually manipulate the market?

I just thought since they have to compete with other market makers, they cannot really manipulate the market but I’m not sure if it’s true.

  • 2
    What is it you think market makers do, and what part of that seems to be manipulation? I am asking to allow the frame of reference to respond, because as-is, the answer could pretty simply be 'No', but I don't think that would be helpful to you. Feb 14, 2022 at 21:09
  • Thanks for replying, what I think they do is they will simply raise the price when they have to buy (when they’ve sold thus having inventory imbalances), and vise versa. Other than that I’d count as manipulation.
    – Kmd
    Feb 14, 2022 at 21:19
  • What does "manipulation" mean to you? I mean "market maker" is in the name, right?
    – littleadv
    Feb 14, 2022 at 23:31
  • @kmd I don't understand - if a market maker raises the price to buy... then they have increased their own cost, not their profit. You should edit your question to give more detail on the step by step transactions that you think create manipulation [and discuss what you consider manipulation]. This may help you find the answer yourself, or at least make the specific misunderstanding more clear. Feb 15, 2022 at 13:21
  • I’m sorry my question seems pretty nonsense I’m just really confused..
    – Kmd
    Feb 15, 2022 at 13:44

1 Answer 1


The NBBO quote that you see (USA) is the highest bid for the stock by a buyer and the lowest offer price from a seller. Any person who places an order with a better price (higher bid and/or lower ask) becomes the market on that side.

It is not correct that the market maker arbitrarily sets a stock's price wherever he wants it trade and others must trade there. In the absence of other traders then the market maker could be market but that would be an ultra-illiquid stock which is a very rare thing today.

  • I think there’re differences between market makers that’s officially approved by the exchange and doesn’t manipulate the price, and market maker who has enough liquidity but isn’t approved and just using market-making-like strategy and actually manipulates the price.. and what everyone calls market maker seems pretty much like the latter one… is it true…?
    – Kmd
    Feb 15, 2022 at 6:44
  • Is it that approved market makers are simply taking the other side of the orders from retail or maybe institutions whatever the price is without actually being on the order book, and they also won’t be on the footprint chart even after the execution?
    – Kmd
    Feb 15, 2022 at 9:41
  • 1
    If not approved by the exchange then one is not a market maker. You or I or anyone else can be one or both sides of the current market price but that is not a "market maker". The only way for anyone to move price is to take out all of the size at the current NBBO price as well as anything else that comes in at that price (hidden orders). That moves price up if taking out the offers (ask) and down if taking out the bids. If you have the dollars to do that, you're moving the market. That's taking on risk not manipulation. Feb 15, 2022 at 15:37
  • Thanks, if market makers can’t set the prices arbitrarily and just have to follow NBBO's prices, how can they beat the retail traders almost all the time and make profit? How can they build strategy around market making?
    – Kmd
    Feb 16, 2022 at 6:59
  • 1
    @Kmd I think you should ask the question about how market makers make money in the economics stack. And, the chart does not show the orders as they happened but as they were recorded. Large orders happen "off the tape" and are inserted after they are completed. The chart is not actually what has happened in the order it happened, unless all orders are small orders. Market making is an inventory management system, like Walmart but with fast execution and buyers become sellers and sellers become buyers. Think about how you want to ask it, and ask it there. Feb 17, 2022 at 2:07

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