Question about NASDAQ Market Makers
 

According a spokesman for Nasdaq, each stock on the exchange has an avg of 11 market makers, with the largest volume stocks such as Microsoft having up to 50.

So, when a NASDAQ stock opens on a serious gap, as was the case, today, with Leap Wireless, who makes that decision? Is it a collective, or is it the mm with the largest stake?

Thx in advance

LEAP

Re: Question about NASDAQ Market Makers
 

i would imagine the opening bid/ask would be comprised of the highest bid and lowest ask from all of the market makers. or is there something i'm not understanding?

Re: Question about NASDAQ Market Makers
 

The NAZ is an electronic market that,operates as just as you said,with the largest cap stocks having alot of MM's and the the smaller ones having much less...but a usually a minimum of four for the smallest cap stocks

The NYSE still operates on the "outcry system" ,with a specific specialist for each listed stock to open/close each stock,along with providing liquidity throughout the day.There are (i think) about 8 specialists firms,and along with the ECN's such as ARCA & Island-INET allow traders to input sell/buy/short sale orders very easily as well.

Now to your question:

When an NYSE stock opens each morning(or even halted for news pending)...that particular specialist is obligated(or at least supposed to...lol) to open the stock at a fair market value based on supply/demand for the stock at that time without bias based on supply/demand.They can take a stock down 20pts just based on extreme pre-market and post halt sell orders ,if offers swamp the bids alone

Obviously they can GAP UP stock also on good news/EPS/etc ...again based on supply/demand

The NAZ operates in the theory that EVERYONE ...(incl. YOU & I on any ECN is a MM),and as soon as a stock is opened,pre-market or post halt on news pending...the sell/buy orders will create a TRUE market very quickly...usually within seconds sometimes.

It may SEEM as if just arbitraraly drops or a particular MM "picks a price"...,but just prior to opening or after this news release on any NASDAQ stock ....MM's ECN,s,etc...will post their bids/offers and virtually within seconds that stock will find some kind of level again based on supply/demand.Sometimes MUCH lower on bad news,missed EPS,an SEC investigation for example,amongst others.

Just look at(or ask your broker) for TIME and SALES for the stock in question.You will see extreme moves during these times in seconds/minutes that will look like the stock is falling off a cliff,or going straight to the moon
The DROPS are usually MUCH more dramatic IMO

The more sellers/short sales...the lower it goes.The more BIDS the higher it will go.

One of my biggest peaves to protect the public(but also some of the most profitable trades I guess I made as a Pro)...was 95% of the companies that release EPS or news ..good or bad,a takeover,etc...is done PRE/AFTER market when there is MUCH less liquidity,causing huge gains/losses when in fact the average Joe doesnt even have access to such trading if they use a broker.

They have to wait till morning and are helpless.I lost many a client who refused to give me authoriztion to get them in and out of stocks during these times,and felt helpless as well

Other VERY important issues are the time,how good/bad the news/current market conditions/expectations/etc.

To me one the the most important issues that reflect these ridiculous swings... is the FLOAT or outstanding shares in that particular stock.

Sometimes there there just arent enough shares out there for evryone one to buy/sell at once....hence the HUGE gap ups or downs.

Most of the NAZ's biggest swings are during the pre/post market when the markets are thinnest ,or AFTER A HALT in trading on good/bad news pending

Another issue is a stocks "short position".A stock with a small float can EXPLODE on some good news just due to a short squeeze alone.

There are SO many more variables,and without rambling on anymore ....but thats the basics

I would be glad to answer any more specifics....so just ask!

Stephen Feraca [img]/images/graemlins/cool.gif[/img]

Re: Question about NASDAQ Market Makers
 

Thanks for the info, Stephen.

Notice how this gap bypasses the $50 mark. My guess is that the MMs were short and collectively made the decision to skip $50, so, they wouldn't have to take on all that inventory from stockholders who set stop losses at that price.

http://i95.photobucket.com/albums/l1...izzy21/big.gif

Re: Question about NASDAQ Market Makers
 

BINGO [img]/images/graemlins/smile.gif[/img]...the players/MM's with the biggest position whether it be long or short....always have advantage to the direction a particular stock moves.

And the SMALLER the float...the more they can abuse that power

That is why stocks "usually" defy logic ,even though they might have great news,beat their EPS estimates,etc

Its a complete game,that the bigger players have a huge edge in.

SF

*** its also the reason I have and will continue to try and warn you guys of the dangers of daytrading,as the playing field is not even close to being level when it comes to this kinda of intra-day crap

Re: Question about NASDAQ Market Makers
 

I work in the order room for a large online broker. It's my experience that specialists are a bunch of scam artists. It's also my opinion that stop orders at any time and market orders at the open are for complete suckers.

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
I work in the order room for a large online broker. It's my experience that specialists are a bunch of scam artists. It's also my opinion that stop orders at any time and market orders at the open are for complete suckers.

[/ QUOTE ]

You are correct..and thats why I added the "lol" after my specialist comment above. [img]/images/graemlins/cool.gif[/img]

In fact a few years back,there were almost 30 specialist firms.After a big price fixing/front running scandel (sending many to jail)...the smaller firms were bought out/merged with the bigger ones.

There was SOOO much BS going on it wasnt even funny.There still is the "ole' boys club" down,there but its not as blatant as before ,with the advent of electronic trading,as well as more oversight added on the floor.

As far as stop orders...I NEVER use them unless I was going to be away from my computers or by by myself,and that was very rare.

The MM's,specialists ...and in recent years the hedge funds,make a TON of money taking/cleaning out stops,and bringing the stock right back to its recent level.

IMO.....thats the BIGGEST scam of late and very tough to police also...mainly to the fact a small market SELL order in an illiquid stock,can trigger a ton of stops on the way down(usually at simple even numbers at certain obvious moving averages)...and then they quickly come in on the BID side to bring it back up and support it.Its also done on stocks on the way UP with huge short positions...driving the stock higher and higher on the sheer mechanics of the market alone from an induced short squeeze

Its a [censored] joke!

One of my BIGGEST recomendations to new investors...is to make sure a stock has a fairly tight bid/ask....and be liquid enough to sell at any given time,without much trouble or inducing a loss due to the large spread.

SF [img]/images/graemlins/cool.gif[/img]

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
According a spokesman for Nasdaq, each stock on the exchange has an avg of 11 market makers, with the largest volume stocks such as Microsoft having up to 50.

So, when a NASDAQ stock opens on a serious gap, as was the case, today, with Leap Wireless, who makes that decision? Is it a collective, or is it the mm with the largest stake?

Thx in advance

LEAP

[/ QUOTE ]

This is what I did for a living.

Pre-market trading is a big contibutor to where a NASDAQ stock opens, but like usual, it is short term demand/supply that ultimately determines.

say MSFT closes at 30 but has positive earnings after the close. It could trade to 30.75 in the evening, then pre-market trade between 30.50 and 31 the following morning before 930AM EST.

But lets say buffet decides he wants a stake in his buddy bill's company and puts an order in with his broker to buy 10MM with a 31 limit (not an outlandish scenario).

say goldman sachs has the order, they will start buying every single share offered for sale below 31 and assuming buffets order was entered before open, the stock will almost definitely NOT open BELOW 31.

the opposite scenario would be true if someone like paul allen tried to sell 5MM with a 30 low or whatever....IF both are happening at the SAME TIME, you may see a big block trade or just heavy volume until the biggest player wins...

does this make sense?

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
BINGO [img]/images/graemlins/smile.gif[/img]...the players/MM's with the biggest position whether it be long or short....always have advantage to the direction a particular stock moves.

And the SMALLER the float...the more they can abuse that power

That is why stocks "usually" defy logic ,even though they might have great news,beat their EPS estimates,etc

Its a complete game,that the bigger players have a huge edge in.

SF

*** its also the reason I have and will continue to try and warn you guys of the dangers of daytrading,as the playing field is not even close to being level when it comes to this kinda of intra-day crap

[/ QUOTE ]

I would make a small correction here:

The player/MM with the largest risk tolerance/capital or largest customer interested in the stock control the price in the short term, not the one with the biggest position (though they may CARE the most).

Re: Question about NASDAQ Market Makers
 

Thats actually what I was trying to imply...I just didnt say it in those exact words

GG
SF [img]/images/graemlins/cool.gif[/img]

Re: Question about NASDAQ Market Makers
 

good stuff guys and this is what I deal with all day long. People entering in dumb orders and complaining when they get taken to the cleaners. Most of what happens is completely legal and makes perfect sense once you understand it. You have to be smart when entering in your orders and you have to be cognizant of everything that can affect prices in the short run.

There are a few things that could be done that would help the retail investor. Getting rid of Reg NMS would be a start. Blowing up the AMEX would help too, though their influence is getting smaller and smaller as Listed Securities are being much more heavily traded by NASDAQ (INET) and other ECNs.

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]


There are a few things that could be done that would help the retail investor. Getting rid of Reg NMS would be a start. Blowing up the AMEX would help too . . .

[/ QUOTE ]

Can you explain these two parts?

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
[ QUOTE ]


There are a few things that could be done that would help the retail investor. Getting rid of Reg NMS would be a start. Blowing up the AMEX would help too . . .

[/ QUOTE ]

Can you explain these two parts?

[/ QUOTE ]

Reg NMS are new regulations in place that determine how orders have to be handled and executed by market makers. There are several exceptions that market makers can use to trade thru the normal retail order. The biggest scam exception that the listed exchanges (NYSE and AMEX) use is the Slow Quote exception. The NYSE or AMEX will go into what they call slow quote mode and then they are able to trade through your order even if your order is part of the NBBO (National Best Bid or Offer). Here's the definition of a slow market according to the NYSE:

The market becomes “slow” or converts temporarily from a Hybrid Market to an auction market so as to
enable specialists, floor brokers and customers to interact with quotes and orders manually, with the objective
of enhancing liquidity, reducing volatility and discovering price. Certain market conditions temporarily trigger
a slow market, including gap quotes, trading halts or reaching LRPs. The slow market can be traded through.

In other words, they can go to slow quote mode whenever they want which enables them to do whatever they want. What a [censored] joke.

As for why the AMEX sucks, just trust me that they do. Their specialists do whatever they want, they don't honor their own quotes, their systems crash all the time, they just plain ass suck and I hate everything about them.

Re: Question about NASDAQ Market Makers
 

Yeah, AMEX blows bigtime and the specialists are often crooks. They can "take" your order off an ECN and not fill it.

Ticks me off too, because AMEX has so many garbage companies, which is what I play the most.

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
I work in the order room for a large online broker. It's my experience that specialists are a bunch of scam artists. It's also my opinion that stop orders at any time and market orders at the open are for complete suckers.

[/ QUOTE ]

Not always true. Market orders pre-open on the NYSE all have to be filled at the same price.

Say a stock had good news and a lot of people want to buy it. The specialist doesn't have much in inventory and is going to have to go short to fill all the buy orders. He wants to be able to buy it back at a lower price to make a profit on all the shares he went short at the open. So he gaps it up at a higher price than it should have at the open. All the buyers are filled at the open and people that held it prior will sell into the gap to take profits. As it drops, the specialist buys to cover his short. This is often referred to as "gap and crap". Putting in a market short order pre-open gets the same price as the buyers, since all orders have to be filled at the same price. So I'm basically riding the specialist's coattails. Sometimes a stock will "gap and go", but that takes a very strong stock indeed.

Re: Question about NASDAQ Market Makers
 

[ QUOTE ]
[ QUOTE ]
I work in the order room for a large online broker. It's my experience that specialists are a bunch of scam artists. It's also my opinion that stop orders at any time and market orders at the open are for complete suckers.

[/ QUOTE ]

Not always true. Market orders pre-open on the NYSE all have to be filled at the same price.

Say a stock had good news and a lot of people want to buy it. The specialist doesn't have much in inventory and is going to have to go short to fill all the buy orders. He wants to be able to buy it back at a lower price to make a profit on all the shares he went short at the open. So he gaps it up at a higher price than it should have at the open. All the buyers are filled at the open and people that held it prior will sell into the gap to take profits. As it drops, the specialist buys to cover his short. This is often referred to as "gap and crap". Putting in a market short order pre-open gets the same price as the buyers, since all orders have to be filled at the same price. So I'm basically riding the specialist's coattails. Sometimes a stock will "gap and go", but that takes a very strong stock indeed.

[/ QUOTE ]

Yes, market orders do have to all be filled at the same price, but on thinly traded stocks a market order can heavily influence what that opening price is.