Hedging client positions

GammaJammer said:
It might be to you Mr first job know it all, but maybe not to someone not working at any sort of a firm. Granted it was a rather simplistic question, but I don't think your response was warranted.
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And your post - 'You're kidding, right?' - that was intended to do what, exactly? At least I tried to offer an explanation, rather than just ridicule the guy.
 
i'm not sure how many people have a clue what is being asked here, or indeed the difference between a broker and a market maker.

Maybe look at it this way-a market maker makes a 2-way price and takes counterparty to a trade in the market. A broker executes on behalf of a client usually against a market maker.
 
Skill Leverage said:
PC World have salesmen and technicians working for them, but asking what the difference between the two jobs was would be a stupid question.
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yeh but he was saying broker as in firm not as in John

edit: I've just read the first post again and he never even said broker lol.

I think the guy thinks that a market maker working for a brokerage firm uses clients funds and hedges using company funds. Maybe explaining the different trading functions that could take place in a brokerage firm would help clear things up for him.
 
a) client hands money to broker
b) broker uses client money, goes into market (INSERT MM HERE) and purchases instruments/creates clients position
c) client gains/loses on the trade
d) client closes position
e) broker makes on the spread, but isn't affected by gains/losses on position, because it's not their money.


A broker handles your order, a MM sells you the stock (or buys it from you). That's the difference. You can't go directly to a MM (although maybe you can now with ECN)?

Of course a MM will try to get their money back by hedging or trading on the back of client orders. if i'm a MM and i sell you a stock and it goes up, I'm going to be wanting to trade on the back of that order. Likewise, if you're wanting to sell a stock i'm obligated to buy it off of you but if the stock then tanks, i'm going to want to hedge my position until the price comes back.
 
Technically Fundamental said:
yeh but he was saying broker as in firm not as in John

edit: I've just read the first post again and he never even said broker lol.

I think the guy thinks that a market maker working for a brokerage firm uses clients funds and hedges using company funds. Maybe explaining the different trading functions that could take place in a brokerage firm would help clear things up for him.
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stay out of this you. you're confusing matters
 
Schixm said:
a) client hands money to broker
b) broker uses client money, goes into market (INSERT MM HERE) and purchases instruments/creates clients position
c) client gains/loses on the trade
d) client closes position
e) broker makes on the spread, but isn't affected by gains/losses on position, because it's not their money.


A broker handles your order, a MM sells you the stock (or buys it from you). That's the difference. You can't go directly to a MM (although maybe you can now with ECN)?

Of course a MM will try to get their money back by hedging or trading on the back of client orders. if i'm a MM and i sell you a stock and it goes up, I'm going to be wanting to trade on the back of that order. Likewise, if you're wanting to sell a stock i'm obligated to buy it off of you but if the stock then tanks, i'm going to want to hedge my position until the price comes back.
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meanwhile in proper trading, broker gets paid by client to execute and MM makes (or attempts to) the spread.
 
gooseman said:
meanwhile in proper trading, broker gets paid by client to execute and MM makes (or attempts to) the spread.
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dude, the market maker is who you buy the stock off of - Microsoft don't have a checkout on their website where you can buy their shares. if you want to buy ms shares you order them through your broker (or ecn) and the MM sells them to you.

EDIT: the MMs (big institutions) hold millions in shares which they have to make a market for - it's their function/job
 
exactly nob-broker calls market maker with an order to buy whatever security. broker says where are you in this in x amount ? market maker has it worth 25. he then says i am 23 bid at 7 in your size. broker buys said amoutn at said price. market maker now stays 23 bid, perhaps even goes 24 bid. pulls offer back to 29 and tries to buy back whatever scurity for a profit of 3 ticks. simple really.
 
Schixm said:
dude, the market maker is who you buy the stock off of - Microsoft don't have a checkout on their website where you can buy their shares. if you want to buy ms shares you order them through your broker (or ecn) and the MM sells them to you.

EDIT: the MMs (big institutions) hold millions in shares which they have to make a market for - it's their function/job
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I'm fairly certain that's what Goose was saying, but perhaps we were getting too close to reality.
 
Technically Fundamental said:
Really? I never knew it was that simple.
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what's complicated about understanding the role of a MM? yeh, their job is complicated but so is a surgeon's but everyone knows BASICALLY what his role is

i know it's a simple view but i don't think the OP wanted to know how to become a MM - just where the MM fitted in the whole process.
 
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