Disliked{quote} But how one can become better knowing this? Plus knowing what? That they hedge? that MM plays the market all around? or what?Ignored
Disliked{quote} I am not going to assume that all market makers conduct their businesses the same because they don't. But they can make money on spread alone, heck if I was a MM right now I would make money hand over fist. I would market to retailers and since 90 percent of them lose anyway I would charge them spread, and then wait for them to lose the account to me by being a counter party, if someone comes in that can trade then I just charge them fee (spread or commission) and pass them straight through the market and let them be someone else's problem,...Ignored
Just look at Lehman what they did, selled some crappy CDS's but because the fkin house bubble got too wild, and were too overleveraged, they got bankrupt, and that caused the popout of the bubble.So they probably didnt have enough capital left to counterhedge in gold or something if they foresaw the crisis, and got fked.
So for market makers there is always a risk of bankruptcy, though small, but its there during wild crowd behaviour.As for the prop trader the risk is that he will not make money forever.His system will become obsolete and he must constantly research the markets.
"There's a sucker born every minute" - P.T. Barnum