Market makers vs. the scalpers

This is a demo of FutureScalper software. It reminds me of Harold and the Purple Crayon.



(YM)

The interesting thing to note here is his commentary on what the market makers are doing and how much they are controlling these 10 minute oscillations. They are filling inventory and then selling it out again. They are aware who the retail people are, and yet many of the retail traders can't follow the market maker's intentions. FutureScalper seems to have some way to pick out who is who. I'm not sure how yet.

A friend of mine— a well known acid house producer — surprised me by telling me he used to be a runner at the CBOT. Like actually running back and forth, making markets. He explained that if you had any math skills like say any average drug dealer might, then it was pretty easy to make loot.

Scalping isn't the most glamorous end of the financial industry. They are essentially bandits, enabled by the electronic trading networks. They don't really serve a purpose in the eco-system other than providing liquidity. None of them has any opinion on the things they trade, they go with their friend the trend.

The market makers well organized bandits. They also provide liquidity, and they charge dearly for it by maintaining the bid-ask spread. And they keep things difficult for the scalpers which is good for everybody else. It shouldn't be easy or everybody would be walking off with the world's financial resources. They do maintain order in the markets, but I'm sure they do plenty of dirty work too.

Most stock traders do a lot of analyzing, arguing and fretting. The company's weaknesses get exposed and tested, and that's good. Its like having a lot of very motivated amateurs checking your work for you. Its probably annoying too, but these guys can also get all irrationally exuberant on your behalf, and then you get market cap. Then they sell and walk away.

OK, here's another thing scalpers do: most of them fail or take a long time learning. Many of them fail to beat the market. So the market takes their gambling cash.

In the end the hedge funds siphon off all the alpha anyway. ;) right ?