4 ms·

He has recently written about something similar: https://www.bloomberg.com/opinion/articles/2019-10-24/we-had-been-hoping-to-get-paid https://www.bloomberg.co

by bertjk 7y ago

He has recently written about something similar: https://www.bloomberg.com/opinion/articles/2019-10-24/we-had-been-hoping-to-get-paid https://www.bloomberg.com/opinion/articles/2019-10-24/we-had... I personally don't see the crime here though. What does it mean to place orders you don't intend to execute? (It is not like they have some way of reneging on the transaction if their bid/offer gets hit.) And in the manipulation of prices, why would simply flashing new non-executing orders on the screen cause market makers to change their prices? Don't the market makers have some responsibility / agency around deciding what to price something at?

anonu 7y ago
1. You cannot place orders for the sake of placing an order. It must be placed with the intention of getting filled. I'm summarizing here but this is generally the law. 2. Placing orders causes prices to move. This is how the markets work. So if you do #1 with the intention of #2, that's market manipulation.
Traster 7y ago
Market makers decide a fair value for a product, decide the volatility and therefore quote a bid/ask spread. One important input into that decision is what other players in the market are willing to trade at. If there's a huge volume offering to buy at 10, I can buy at 11 safe in the knowledge that generally I can offload that at 10 if things don't go well. Remember, market makers aren't making a profit on every trade, they're making a profit over many trades by taking on risk. Sometimes the market will genuinely move due to outside news and they'll take losses in those cases. They don't know they're going to be able to sell their position for a profit, they just know if they quote correctly that they can extract a premium for taking on that risk (and then alpha for being able to price better than other people). If you start systematically putting orders in the market that you don't want to trade in order to influence other people's willingness to trade and then pulling the orders out then you can make money off those market makers. The problem is, that if you can trick people into doing bad trades they're going to be systematically losing money. This means they'll change their strategy - they can no longer trust the offers in the market as a source of information. So now, because they don't have reliable information on what other people in the market are offering, they can't be as confident, so they have to quote a wider spread between bid and ask. So now the average punter who wants to sell their position is going to pay a bigger premium to the market maker. So there's less liquidity and it's more expensive to use the market- which goes fundamentally against what the markets are there for.

by bertjk 7y ago

anonu 7y ago

1. You cannot place orders for the sake of placing an order. It must be placed with the intention of getting filled. I'm summarizing here but this is generally the law. 2. Placing orders causes prices to move. This is how the markets work. So if you do #1 with the intention of #2, that's market manipulation.

Traster 7y ago

Market makers decide a fair value for a product, decide the volatility and therefore quote a bid/ask spread. One important input into that decision is what other players in the market are willing to trade at. If there's a huge volume offering to buy at 10, I can buy at 11 safe in the knowledge that generally I can offload that at 10 if things don't go well. Remember, market makers aren't making a profit on every trade, they're making a profit over many trades by taking on risk. Sometimes the market will genuinely move due to outside news and they'll take losses in those cases. They don't know they're going to be able to sell their position for a profit, they just know if they quote correctly that they can extract a premium for taking on that risk (and then alpha for being able to price better than other people). If you start systematically putting orders in the market that you don't want to trade in order to influence other people's willingness to trade and then pulling the orders out then you can make money off those market makers. The problem is, that if you can trick people into doing bad trades they're going to be systematically losing money. This means they'll change their strategy - they can no longer trust the offers in the market as a source of information. So now, because they don't have reliable information on what other people in the market are offering, they can't be as confident, so they have to quote a wider spread between bid and ask. So now the average punter who wants to sell their position is going to pay a bigger premium to the market maker. So there's less liquidity and it's more expensive to use the market- which goes fundamentally against what the markets are there for.