The market maker, as the name implies, refers to a financial institution that has agreed to accept the risk of holding a certain amount of shares in a specific security in which they will trade on behalf of the client. In short, they act as the middleman. These guys are well known to be armed with many tricks to try and ‘scare’ away the newbie trader. If you are new to trading, here are two market maker tricks that you should be aware of.
1. The Head Faking Trick
The head fake trick is possibly the most common of mental mind games played by market makers today. The purpose of this strategy is very similar to the head fake found in football. Here, the market maker will make it seem as if the play is going into the opposite direction of what it is supposed to, before hitting a reverse. Head fakes can easily be recognized by the way they appear from nowhere. Furthermore, the stocks will also decline violently. This way, no one steps in to buy and the market maker achieves victory. It is all in the way the maker places his bids and offers that causes the outcome. The end result, most often, equals incredible profit.
2. The Spoofing Trick
In this market maker trick, the trader will place a large, set buy order in a particular stock that he owns. However, he will cancel the order within a few seconds after purchase. This stunt will cause the market to rapidly climb – ultimately giving the newbie the impression that there is a high demand for the stock. This strategy is generally nothing more than the artificial impression of the intent to either buy or sell shares. Don’t be fooled by rapid market shooting, especially if it appears out of nowhere.
By now you should already know that market makers are out to make money. In fact, it is their job. It is also a fact that somewhere along the line you will find yourself facing one of the many market maker tricks used by the big boys. You can counter some of their tricks by using these professional trading secrets as part of your trading strategy. Be sure to know what to look out for.