How Market Makers Manipulate the markets.
PLEASE IGNORE THE CHART.
I see a lot of people refer to MMs as some malicious entity who is out to get your money. But their core job is to provide liquidity and smooth functioning of markets. Sharing what I know and understand about MMs.
Some key roles and responsibilities of a market maker include:
Providing liquidity: By being ready to buy and sell assets at any time, market makers ensure that investors can quickly execute trades, even in less liquid markets.
Narrowing bid-ask spreads: Market makers help to reduce the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) by continuously updating their quotes. This helps to minimize the transaction costs for investors and traders.
Price discovery: Through their constant buying and selling activities, market makers contribute to the price discovery process, helping to establish a fair market price for the asset.
Facilitating trading: Market makers maintain an inventory of securities, allowing them to execute trades quickly and efficiently, even when there is a temporary imbalance between buyers and sellers.
Risk management: Market makers must manage the risks associated with holding large inventories of securities, including fluctuations in prices and potential changes in market conditions.
Overall, market makers play a crucial role in financial markets by providing liquidity, reducing transaction costs, and promoting efficient trading. They help to create a more stable and transparent market environment for investors and traders.
HOW DO MARKET MAKERS MAINUPLATE MARKETS.
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Wash trading: Market makers could create artificial trading volume by simultaneously buying and selling ASSET to themselves. This can create an illusion of high liquidity and demand, potentially attracting more traders and influencing the price.
Spoofing: Market makers might place large buy or sell orders with no intention of executing them, to create an illusion of strong buying or selling pressure. Once the price moves in the desired direction, they can cancel the orders and profit from the price movement.
Pump and dump schemes: Market makers, along with other participants, could spread false or misleading information to artificially inflate the price of Bitcoin, only to sell their holdings at a higher price. Once they exit the market, the price often drops, leaving other investors with losses.
Stop-loss hunting: By rapidly moving the price in one direction, market makers can trigger stop-loss orders placed by other traders. This can cause a cascade of selling or buying, pushing the price even further in the desired direction.
Front-running: Market makers with access to order flow information could take advantage of this knowledge by placing orders ahead of large buy or sell orders, profiting from the anticipated price movement.
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The only real way asset's price can be manipulated by MMs where they actually inject money into the markets is SL hunting , remaining all ways involve tricking retail to inject money into the asset by falsifying information which retail looks at to make trading decisions.
I see a lot of people refer to MMs as some malicious entity who is out to get your money. But their core job is to provide liquidity and smooth functioning of markets. Sharing what I know and understand about MMs.
Some key roles and responsibilities of a market maker include:
Providing liquidity: By being ready to buy and sell assets at any time, market makers ensure that investors can quickly execute trades, even in less liquid markets.
Narrowing bid-ask spreads: Market makers help to reduce the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) by continuously updating their quotes. This helps to minimize the transaction costs for investors and traders.
Price discovery: Through their constant buying and selling activities, market makers contribute to the price discovery process, helping to establish a fair market price for the asset.
Facilitating trading: Market makers maintain an inventory of securities, allowing them to execute trades quickly and efficiently, even when there is a temporary imbalance between buyers and sellers.
Risk management: Market makers must manage the risks associated with holding large inventories of securities, including fluctuations in prices and potential changes in market conditions.
Overall, market makers play a crucial role in financial markets by providing liquidity, reducing transaction costs, and promoting efficient trading. They help to create a more stable and transparent market environment for investors and traders.
HOW DO MARKET MAKERS MAINUPLATE MARKETS.
==========================================
Wash trading: Market makers could create artificial trading volume by simultaneously buying and selling ASSET to themselves. This can create an illusion of high liquidity and demand, potentially attracting more traders and influencing the price.
Spoofing: Market makers might place large buy or sell orders with no intention of executing them, to create an illusion of strong buying or selling pressure. Once the price moves in the desired direction, they can cancel the orders and profit from the price movement.
Pump and dump schemes: Market makers, along with other participants, could spread false or misleading information to artificially inflate the price of Bitcoin, only to sell their holdings at a higher price. Once they exit the market, the price often drops, leaving other investors with losses.
Stop-loss hunting: By rapidly moving the price in one direction, market makers can trigger stop-loss orders placed by other traders. This can cause a cascade of selling or buying, pushing the price even further in the desired direction.
Front-running: Market makers with access to order flow information could take advantage of this knowledge by placing orders ahead of large buy or sell orders, profiting from the anticipated price movement.
===================================================
The only real way asset's price can be manipulated by MMs where they actually inject money into the markets is SL hunting , remaining all ways involve tricking retail to inject money into the asset by falsifying information which retail looks at to make trading decisions.