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ringingbells OP t1_iu9oa9o wrote

Reply to comment by Extremely-Bad-Idea in Is it just me, or is a a Market Makers' role in Order/Execution/Settlement confusing? Question: The CEO of Webull talked about their Market Maker, saying: "We're able to buy a share without driving up the stock 10% every time?" What does this work with Price Discovery & Supply & Demand? by ringingbells

Thank you. So, let me get this straight: you are saying it doesn't affect supply & demand because it never actually gets purchased, the market maker just switches ownership within the company's sellers, keeping all that info internal to the Market Maker?

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notausername86 t1_iu9z2fx wrote

Yea, well kinda. Atleast from what I understand from the research I've done and how it works is like this. I could be totally off base but I've been told that this is exactly the reason why you don't Wana use brokerages such as webull and rh

So what happens in actual real life is that these brokages own a pool of shares of some of the biggest/largest/popular/in demand stocks. So for example let's just use apple. So a brokerage like webull "owns", just for sake of ease and understanding, 500, 000 shares of apple. So then you, as a retail investor using that brokerage wants to buy 500 shares of apple. On the other end of that, another one of their customers wants to sell 500 shares of apple (or several others using the brokerage), or they themselves can sell it to you from their pool, so instead of pulling the shares from an exchange, they pull it from themselves, and thus can set it up so the buying/selling of those shares doesn't cause a jump in the price of shares, because those shares are being done intentally, rather than externally. When you buy these shares from these brokerages you don't actually "own" the shares, you just have the right to buy and sell them (if that makes sense). This is the theory behind why people who were holding gme were direct registration their shares, as when they do that, they by regulation do own the shares (and thus these brokerages can not loan those shares out or manuplate the data)

As I understand it, brokerages where you pay a fee (like fidelity or tdameratrade) doesnt work like this, and when you purchase shares on those brokerages you do own the shares, and this is why you pay a fee (or atleast again, thats what ive been told) and they do get them directly from the exchanges (thus effecting the price of the stock). It's a bit more complex than that, I think the data of the sell still gets recorded in the level 2+ data and if the demand surpasses their supply they que up the order to add to their exsisting pool of shares, and I think that depending on the ticker that the order does get routed to an exchange. It's all very complex, and I don't know if I fully understand how it works. Maybe someone else can chime in and give more details or tell me where I'm wrong.

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ApeHolder42069 t1_iucgwtx wrote

There's just one catch as far as I understand when talking about buying through Fidelity f.ex. if you are buying less than 100 shares (this amount varies according to the price of the stock, IIRC it's like brackets of 10, 100 and 1000 something like that) then it's an "odd lot" and it won't affect the NBBO.

So most smaller trades by retail have absolutely no affect on the price.

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Extremely-Bad-Idea t1_iu9q5wj wrote

Marker makers are doing the exact same thing that exchanges do. They match buyers and sellers.

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stockpyler t1_iubiacb wrote

But they do it internally so as not to affect the stock price on the exchange, where the actual price is quoted from right? The exchange that never sees those buy/sell orders?

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[deleted] t1_iu9rdmr wrote

[deleted]

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Extremely-Bad-Idea t1_iu9t5z9 wrote

I am unaware of any volume requirements that the NYSE or NASDAQ are required to maintain as part of their SEC licensing. Obviously they are huge and process billions of shares in trade every business day.

Regarding individual market makers, I believe that any SEC licensed brokerage can be a market maker for one or more stocks. Big brokerages, such as Fidelity and Schwab, can easily make internal matches between buyers and sellers for heavily traded stocks like Microsoft, Exxon, and Macy's. However, they may need to still need to divert some orders to exchanges when they can't match them immediately.

For thinly traded stocks, such a small caps, the exchanges are very important. Even big brokerages typically cannot be market makers for those.

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ringingbells OP t1_iu9t5oj wrote

>"Marker makers are doing the exact same thing that exchanges do."

  • What trading volume, as a Market Maker or entity, do you need to hit to require induction as a public exchange?

  • For that matter, as a side note, what is the trading volume of the current market maker deck compared to public exchanges like Nasdaq, Cboe, NYSE, etc...?

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mollila t1_iub05px wrote

Not only switching ownership, but market makers are allowed to sell stocks without having it, in order to 'provide liquidity'. They can add stocks into the system, and cover it later. Not actual registered shares of a company of course, but the so called beneficiary owner shares traded under the DTCC system encompassing all the brokers etc.

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Effective_Health2358 t1_iubzrbu wrote

Exactly, but sometimes they don’t have organic traffic to cover the buy/sell orders.

In these cases, they just go short the shares ppl buy and later cover from the market or internal traffic.

By law, they must deliver shares within the bid/ask of the market, which protects retail.

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