I have noticed that often successful traders talk a lot and a have a deep understanding of the market makers activity: when they accumulate, they short squeeze, they set up bulls/bears trap, etc...
Unfortunately I can't find much resources on this subject.
Do you know any comprehensive resource about market makers on the futures market? (book, website, video, webinar...)
that question cannot be answered really. If you're looking for the psychology behind market makers, I suggest you pick up a good book about market makers. Furthermore, I don't think there's much difference between stock market makers and futures market makers.
But if you want to understand bear traps, short squeezes, etc, I don't think studying market makers would benefit you. Instead study technical analysis... that would give you much better knowledge to trade with
I've heard the term used in futures can someone give me an example? With a stock it makes sense. The market maker has a certain ability to control the flow of inventory. Who would be an example of a market maker in the ES?
I'm interested in this as well, as I understand the future prices are in sync with the actual index/currency. But what keeps it that way?
What would happen if all of sudden everybody decides to buy 6E contracts, and rack up the price with no regards to the actual Euro price.
But that doesn't happen. I don't know why.
Official market makers who receive trading privileges from the exchange in return for obligations - quoting say 90% of the day. Their quotes dont have to be the inside market, but say 3-4 ticks wide. Generally, you dont get official mm's in really liquid contracts like ES as there is enough liquidity - they tend to be to support thinner less traded contracts to encourage liquidity. Exceptions being STIR markets. It doesnt make commercial sense for an exchange to support them really.
The other type are firms who act as a mm but may not be official mm so get no trading privileges, but dont have any obligations either. They act as a mm as a strategy. Some HFT firms are a good example.
As for running stops etc - thats not really a mm. Thats just large prop firms/big traders.
Most mm's are trading a spread against a correlated product. e.g. if I was to act a mm in CL, I'd be looking at other CL months or Brent etc to lift if I got filled in CL.
Dont believe too much of what you read in books and internet sites. Most of the ideas are rehashed by some author and/or based on concepts 20 years old.
Last edited by TheDude; July 26th, 2013 at 05:48 AM.
Dealers make money by maximizing their realized spread. That is, they favor a balanced order flow where they can sell as much on the offer as they buy on the bid and therefore they earn the spread. This way, they maintain their actual inventory at their target level (in balance). Based on their customer order flow, and market research, they may start quoting one side more heavily than the other when they expect that the market will soon leave balance (ie. quote more bid than ask if they expect a move up, and vice versa).
Squeezing and stop running and other tactics typically require crossing the spread, which reduces realized spread and hence adversely impact dealer profits. Therefore, these are not typical dealer strategies. Sometimes though, when the dealer acquires some material information by market research, or when substantial news comes out, they may engage in speculation (accumulate/distribute) by crossing the spread in the direction of the move, and quote the other side more heavily to establish new target inventory. Dealers will also 'puke out' and cross the spread if they can not re-establish their target inventory, that is, if they are stuck on the wrong side of a move and need to unload/loadup, depending on the direction. They are not running a charity because they are here to make money after all, but I don't expect them to be as manipulative as described.