What is Market Making?

[zeeuk]

I trade Eurex and CBOT markets intra-day. Usually have orders on either side of the market (or at market) I hear quite a bit about market-making but don't fully understand it.

I believe being a market-maker amongst other things gets you cheaper transaction costs. How do you become a market-maker and what does it entail? Any market makers on T2W - perhaps on Eurex, Liffe or CBOT?

 

[ardhill]

http://beginnersinvest.about.com/library/blmarketmakers.htm

Market Makers are Very large financial firms that are specialists in particular stocks. For the privilege of being a market maker, they must abide by certain rules, one of which is that they must always give a Bid and an Ask (Buy & Sell) price in the stocks they deal in. Thus they "Make The Market".

Market Makers need to have a vast supply of money to be able to operate as a MM.

The link above will give you a bit more info on them in ordinary language as well as a few links to other stock market questions.

Some of the following are Market Makers on the Nasdaq:

GOLDMAN, SACHS & CO
J.P. Morgan Securities Inc.
Citigroup Global Markets Inc.
MORGAN STANLEY & CO., INCORPORATED
Credit Suisse First Boston LLC
Banc of America Securities LLC

I am not being cheeky, but you are not likely to 'become' a market maker. You may go and work for one of them, but the average person doesn't become one.

I trade the Nasdaq, so can really on comment on that. But, with direct access into the nasdaq, you can create your own bid and ask prices, thus almost being a market maker yourself. I say almost as that is the very tip of the iceberg of their job as a MM.

 

[zeeuk]

Thanks Ardhill - I will check the link out and appreciate your views on stocks.

I work for a relatively small firm trading financial futures on Eurex, and there are a few guys in a different room (very secretive) who market make in the same contracts I trade. I understand the huge capitalisation requirements for underlyings, but am sure these 'ordinary' guys do not have millions to market make in futures.

 

[CityTrader]

Zeeuk - I think you are mistaking "market makers" for "locals" - effectively self employed traders, which your " very secretive" guys (secretive?? what are they? ****ing spies??!!) do.
In spite of what Ardhill says - not all Market making firms are "very large financial firms" - in the Uk, for example have a look at J.P Jenkins who make a market in OFFEX stocks. Winterfloods , whilst now ownded by Close Bros certainly didn;t start huge- other smaller market making firms include Shore Capital, Altiium, Durlacher, - all be it larger than most private individuals, but not giants of the financial world.