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43 votes

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

A limit order is an order to buy or sell a product at a specific price or better. For a buy order, you might buy for lower than the limit. For a sell order, you might sell for more than the limit. If ...
Michael's user avatar
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34 votes
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Why do market-makers usually win against traders?

A market maker has several advantages: Faster access to market news and they can change their price faster than you can If they are the market, they buy at the bid and sell at the ask when the ...
Bob Baerker's user avatar
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21 votes

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

In a reply to one of the comments, you state: "Isn't [getting the transactions filled] a good thing? Isn't that the whole point of placing an order and being the first in line? What's the point ...
Grade 'Eh' Bacon's user avatar
9 votes

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

It would make sense for an investor or trader to place a limit order in advance to close an existing position at a better price. For new positions, traders might be less inclined to have limit orders ...
Bob Baerker's user avatar
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7 votes
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Why do market makers sometimes quote absurd bid and ask prices rather than remove their quotes?

These "absurd bid and ask prices" are called "stub quotes". A stub quote is an offer to buy or sell a stock at a price so far away from the prevailing market that it is not ...
Flux's user avatar
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7 votes

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

why don't traders enter limit orders at all prices, so that they could be first in line when the price moves? Because when the price moves to your limit, you aren't "first in line": you've ...
Phil Frost's user avatar
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5 votes
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Why do market-makers price themselves?

Market-making means providing both a bid and ask for a given asset, so anyone who wants to trade has at least one person who is willing. Lots of different people/institutions make markets, or help to ...
farnsy's user avatar
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5 votes

What is the role of a market-maker?

The role of the market maker is to make sure there is a bid and ask on a particular stock. That's it. The market maker ensures that there is a price at which you can buy and a price at which you can ...
farnsy's user avatar
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5 votes
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Are there market makers in bonds market?

Bonds are not traded on an exchange like stocks, and so there are no "designated" market makers like for stocks, but there are some brokers that will buy and re-sell bonds to keep liquidity ...
D Stanley's user avatar
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4 votes

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

This income comes from fact most people don't want to wait and just buy/sell on current price. While market maker is ready to wait and buys/sells on a better price. Here is a simple example: 1) MM ...
maxpovver's user avatar
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4 votes

Market maker's manipulation

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)...
Bob Baerker's user avatar
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3 votes
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How do stock exchange specialists deal with opening auction imbalances?

I found the book's errata on the author's old website (archived link screenshot). The author made a mistake. It should be: For example, if traders want to buy more than they want to sell at the ...
Flux's user avatar
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3 votes

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

First, MM's are bound to provide quotes within specific parameters by contract. ONE of those parameters is time (95% of the time, i.e.). Second, this could be just a bet (maybe someone sells market - ...
TomTom's user avatar
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3 votes

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

I doubt that there are millions of derivatives tied to an index fund. Perhaps tens of thousands in something like the SPY. Even so, that's a separate issue. All options must update as their ...
Bob Baerker's user avatar
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3 votes

Who provides liquidity if there's no market-maker?

Market itself. Every market participant makes ask or bid offer with all of its trades (even with MKT order - it is dissolvable to LMTs for best price levels). If you have enough participants you don'...
yety's user avatar
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3 votes

How do market-makers pair up buyers and sellers?

A brokerage web site isn't a market maker. Brokers are intermediaries that buy and sell securities for an investor/trader. Market makers tend to be large banks or financial institutions that provide ...
Bob Baerker's user avatar
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2 votes
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How do market-maker orders get filled?

Market makers maintain continuous two sided quotes (bid and ask). Let's assume that the market maker is on both sides of the quote. If someone else trades at the market (buy at the ask and sell at ...
Bob Baerker's user avatar
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2 votes

Does it make sense for a publicly-traded market-maker to profit a lot from a crash?

Is hard to ever answer 100% on a question like this as different market makers trade different sizes and strategies, but two key things often happen in a crisis which market makers like: Spreads ...
Philip's user avatar
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2 votes

How is a market-maker always ready to buy and sell?

How is the market maker able to make deliver on their bid and ask prices? They are NOT. They are MOST OF THE TIME ready - but there are times they basically kill their book and do not offer one or ...
TomTom's user avatar
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2 votes
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How do market makers avoid losses in their stock inventory?

Some market makers do probably have positive overall exposure to the market, but they can do a lot to avoid this situation. They make markets in many different assets at the same time, so they don't ...
farnsy's user avatar
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2 votes

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

It’s the other way around: if it’s $100 bid and $101 ask the MM is asking for $101, i.e., offering at that ask price.
C8H10N4O2's user avatar
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2 votes

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

Your fundamental understanding is correct. The problem is that you're just not connecting a few of the dots. Consider your airport currency exchange. Think of it as 1.32 CAD is the bid and 1.33 ...
Bob Baerker's user avatar
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2 votes
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How do derivative prices react so quickly to changes in underlying prices?

The market makers in various options operate their own or third-party pricing and valuation systems which will take the price of the underlying into account. These valuation models will run on server ...
xirt's user avatar
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2 votes
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Who are the market makers for large traders?

Realistically to be large enough and savvy enough to be a "threat" to a market maker the trader will have to be an institutional investor such as a hedge fund, an insurance company or a ...
MD-Tech's user avatar
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2 votes

Are market makers also obligated to keep the option markets liquid?

Yes. All exchange members appointed as an options market maker have a continuous quoting obligation (usually more than 60% of the series and time in a given class), combined with an obligation to ...
xirt's user avatar
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2 votes
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Are market makers also obligated to keep the option markets liquid?

There is a maximum size for a Valid Width Quote and its size varies depending on the price of the option as well as whether it's a standard option or a LEAP and if ITM or not. If I remember correctly,...
Bob Baerker's user avatar
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2 votes

Can market makers decrease/increase supply or demand?

Price moves up and down because of supply and demand. Market makers often trade for their own accounts so their volume is variable. However, market makers are regulated and they are required to ...
Bob Baerker's user avatar
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2 votes

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

Imagine you have an equity trading at a spread of 50 vs 51. You have a solid idea the correct price of the equity is the exact midpoint of 50.5, as well as the ability to move very quickly when you ...
Philip's user avatar
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2 votes

How do market-makers pair up buyers and sellers?

https://www.investopedia.com/terms/m/matchingorders.asp Generally, a buy order and a sell order are compatible if the maximum price of the buy order matches or exceeds the minimum price of the sell ...
Acccumulation's user avatar

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