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Old 11-09-2007, 05:55 PM
stephenNUTS stephenNUTS is offline
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Join Date: Oct 2006
Posts: 964
Default 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 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, 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 just ask!

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