Questions tagged [market-making]

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Unintended information asymmetry in the stock market caused by options market makers

I just went over a publication "Hedging by Options Market Makers: Theory and Evidence" by Sahn-Wook Huh, Hao Lin and Antonio S.Mello One of the ideas they touch on, is that Options Market ...
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6answers
7k views

Why don't traders place limit orders at all prices to be first in line when the price moves?

In markets with price-time priority, why don't traders enter limit orders at all prices, so that they could be first in line when the price moves? For example, if the current best bid is $10 and the ...
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1answer
83 views

Can NYSE market makers step in front of existing limit orders to fill an incoming market order?

Suppose the lowest offer on stock S is $10. This offer is not the market maker's offer. A trader places a market order to buy stock S on the NYSE. Can the NYSE market maker "intercept" this ...
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1answer
110 views

Did I give bad advice about investing in market making firms?

Background: I recently explained to an amateur trader (who happens to be a family member) about the basics of the bid-ask spread and how market makers make money from the spread. As an offhand remark, ...
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0answers
79 views

Do customer orders have higher priority than market makers' orders in the US OTC stock market?

In the US OTC stock market, do customer orders have higher priority than market makers' orders? For example, a market maker is bidding on stock S at $10 for 100 shares. Assume that this is the highest ...
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2answers
99 views

Is the market maker for a particular stock also the market maker for that stock's options?

Is the market maker for a particular stock also the market maker for that stock's options? ... or is it a different person entirely that makes the options markets for that stock? If it's 2 different ...
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1answer
63 views

How do stock exchange specialists deal with opening auction imbalances?

I am having some problems understanding stock exchange opening auction imbalances. In Trading and Exchanges by Larry Harris, section 24.5.7 The Market Open, page 508: Specialists conduct the opening ...
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1answer
92 views

Can market makers decrease/increase supply or demand?

I didn't fully understand the concept so i have a question, What I have understood so far is the market makers have a stock inventory and they make quotes about bid and ask price to provide liquidity. ...
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2answers
190 views

Are there designated market makers for stock options?

I know that there are individuals and firms who specialize in making markets for options, but are there designated market makers for stock options? By "designated market maker", I mean a ...
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1answer
90 views

Why are liquidity suppliers willing to provide "price improvements" when executing orders?

US stock brokers often boast of "price improvement" when speaking of their order execution quality. e.g. "95% of executed market orders received prices better than the National Best Bid ...
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0answers
33 views

Why do some market makers have many Market Participant Identifiers (MPIDs)?

I noticed that some (most?) market making firms have many Market Participant Identifiers (MPIDs). For example, from the list of NASDAQ market participants1: "Jane Street Capital, LLC" has ...
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1answer
410 views

What exactly are Level 2 quotes, and how are they related to the limit order book and "market depth"?

I am trying to understand the definition of "Level 2 quotes" and their relationship to the "limit order book" and "market depth" ("depth of market"). I have ...
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2answers
126 views

Are market makers obligated to keep the option markets liquid?

I know that each stock has at least one market maker that is responsible for keeping the equity market flowing, but what about the options market? Are the respective market makers also bound by ...
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2answers
360 views

Why do market makers sometimes quote absurd bid and ask prices rather than remove their quotes?

The image below shows the Level 2 bids for Fortescue Metals Group Ltd (OTCQX: FSUMF) on 2020-10-07 10:20 am: Notice the 0.01 × 10,000 bid by NITE (Virtu Americas LLC), which is extremely unlikely to ...
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3answers
188 views

How do derivative prices react so quickly to changes in underlying prices?

Just trying to understand something with the market pricing and how it works. There are literally thousands, if not millions of derivatives tied to say an index fund (which in turn are composed of a ...
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1answer
279 views

Who are the market makers for large traders?

I read that market makers, like large investment banks, usually don't like providing liquidity to savy, larger traders because the bank will be on the losing side of transactions. If so, who are the ...
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2answers
6k views

Why do market-makers usually win against traders?

I heard that market-makers — like TD Ameritrade and Fidelity – usually make profits while traders do not, especially in foreign exchange. Why is that?
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1answer
236 views

How do market makers avoid losses in their stock inventory?

The Designated Market Makers (DMMs) on NYSE and the Market Makers on NASDAQ hold shares in their inventory in order to facilitate liquidity. Given that stock prices change throughout the day, how do ...
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1answer
412 views

Are there market makers for OTC stocks?

Will I always be able to find a willing buyer/seller for stocks that trade on the OTC markets? In other words, are there market makers for OTC stocks similar to the market makers for NYSE and NASDAQ ...
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4answers
453 views

How do market makers profit from the bid-ask spread when bids are almost always lower than asks?

I am familiar with how currency exchange booths at airports make some of their money: from the bid-ask spread. For example, they will say: "you can sell us 1 USD for 1.32 CAD, and you can buy 1 USD ...
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1answer
217 views

How much can option market makers influence stock prices?

Do option market makers also hold stock for the options they write? Suppose it's a: $10 billion company $20 stock 23 strike calls @ 30 cents Buy 5000 calls 10 days until expiration I think this ...
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2answers
218 views

Forward contract hedge and market-maker

Referring to McDonald's Derivatives Markets book, a market-maker or arbitrageur must be able to offset the risk of a forward contract. It is possible to do this by creating a synthetic forward ...
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37k views

Does a market maker sell (buy) at a bid or ask price?

From Fool.com: How Are Stock Prices "Set"?: Assume you want to sell some of your shares of EVE at the current "market" price. The lowest ask price from sellers is $16.00. The ...
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2answers
4k views

Understanding the concepts of market maker and broker

Wikipedia says: A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the ...