How do market makers work?

[CyclingInvestor]

Originally Posted by terminator

Since we're on the topic, do large brokerages, like Fidelity, set up systems to trade shares in-house and either save their customers the spread or make more money for themselves?

Yes. Orders are always crossed internally if they can, but they must match the
composite BBO price.

[clifp]

Originally Posted by twaddle

That's sort of my guess, too. But I don't think they do it for efficiency. I think they do it because they're hoping to get away with the lower bid as long as they can. Once a higher bid comes in that is within their spread threshold, then they reset.

Bottom-line: I want to be a market maker. Where do I sign up?

Googling a bit I see you can get a seat on the Chicago Board of Trade for a bit over $3 million, and CBOT website says you need to pass a few tests.

IIRC, the CBOT is one of the few remaining hold outs of the open auction system, which means you'd have a good excuse to dress up in bright guady cloths wear weird hats and such.

I think it would fun but I hear others a say it is a lot of w*rk

[al_bundy]

i remember reading Cramer's book when thestreet.com went public he said Knight Capital was a market maker. he said they bought up the stock and then shorted it or something like that. forgot the details.

in the end though they made a ton of money and the suckers who bought the IPO lost a lot of money