4 ms·
> Making markets does not add any value to anyone other than the marketmakers and the stock exchanges. Could you elaborate on this statement? It is my understa
by 100qs 8y ago
> Making markets does not add any value to anyone other than the marketmakers and the stock exchanges.
Could you elaborate on this statement? It is my understanding that the value market markers provide is liquidity and tighter spreads. Worst case, they pull orders when informed volume is detected, but then the book is no worse off than what it would be if the market makers weren't there.
- mverwijs 8y agoYes they provide liquidity. But that is not the reason traders become market makers. The liquidity is something that the exchanges want so they can provide better services to their other users / customers. What the market makers get in return is some privileges on the exchange, such as favorable credit exempts or short sale treatments. This depends on the exchange. But being a marketmaker, basically obliging to be able to quote a price on anything and everything, is regarded as much as a nuisance as it is a benefit.
- tptacek 8y agoLiquidity reduces the cost of trading for everyone, which is something you can just empirically verify. What do we care what someone's motivation for doing it is? Presumably everyone's motivation in finance is to make money.
- mverwijs 8y ago> Liquidity reduces the cost of trading for everyone, Yes. And I do not see this as a boon. It reduces the cost of trading for traders at the expense of _everything_else_. Eg: search for 'whack bully oil prices'.
- kharms 8y agoNot OP, but I think of jobs like theirs as being about marginal utility - how much better off is the world if trades are executed .001 seconds faster? It seems that for a lot of jobs the answer is not at all.