One common misconception in the retail trading world is that market makers move the market, typically to hurt retail traders.


How often have you heard someone refer to ‘they’ in terms of ‘they’ moved the market against me? The ‘they’ being referred to is usually market makers or similar liquidity providers.

Not New

These attacks on market makers are not new. Back in the pit trading days, the ‘locals’ (who acted as market makers) were routinely blamed whenever an execution broker was unable to get the fill they wanted.

If only they could get rid of the locals and move to screen based trading this would stop! But of course, screen based trading did not stop bad fills. Yet criticism of market makers continues.

Why would they?

When considering whether market makers do indeed move the market it is essential to consider how they trade. Market makers hold trades for as little time as possible. They don’t want to hold positions because doing so restricts their ability to make the best price. For example, if a market maker is long and the price is falling, (s)he may be unable to make a competitive bid and will clearly be favouring trying to sell.

In today’s world of computerised and high frequency trading, trades for liquidity providers are held for fractions of seconds in many markets. Risk is offset or eliminated as quickly as possible.

So why would a trader who mainly has no position want to move the market?

Changing their price

We need to separate the idea that market makers move the market to hurt people, from the genuine market making operation which includes making and changing the price (spread) to reflect changing demand and supply or other market action.

Of course, market makers will need to change their price to reflect changing conditions. They are responding to changing dynamics rather than setting them. But again, this is in the context of them trading in micro-seconds; often too fast for retail traders to notice.

Pulling Orders

What about all the adding and pulling of orders, surely that is a sign of market makers up to no good? Very occasionally it might be. But again, why would a trader who is mostly trying to trade flat (position wise) be trying to manipulate the market? More likely is that their models are seeing a reason/need to change their price/orders due to changing dynamics.

Who’s fault is it?

If you find yourself on the wrong side of the market movement, the likely person to blame is yourself!

If you use the same analysis, chart levels, patterns, indicators etc as lots of others then you are more likely to get caught out with them too. The reason it feels like better traders are hurting you is simply that you are using unreliable retail methods.

Responsibility not blame

As I say to my Under 14s soccer team, when you make a mistake, take responsibility, don’t blame others.

Blaming market makers for hurting trades has been around for as long as market makers have operated.

It is usually a sign of someone trying to deflect blame.

It is hard to improve your trading without taking responsibility for your actions.

At the high frequency level market maker type traders are typically trading against each other, such is the speed at which they operate (see my previous article here).

If you can’t beat them…

And at the end of the day, if you can’t beat them, join them! Learn how market makers trade and develop a style of trading that is more like them and less like retail traders.

Keep Grinding


P.S. For more on misconceptions on market making read my previous article here)