Traders often catch a story, rumor, news or filings about a company and will rush over to their trading screens to place an order. Level 2 can be one of the most valuable tools a trader can have, but like any tool in a tool chest, not understanding how it works, can sometimes turn what was thought to be a good idea into a quick buck for someone using dirty market makers. While the role these guys play on OTCBB and Pinksheets listed stocks is huge, who they are and how they work is critical knowledge in the quest to know what you’re up against when trying to make a couple of bucks.
What are Market Makers?
A market marker is a firm whose sole function is to help make a market for a stock, by making bids and offers from their account in the absence of public buy or sell orders. Often times, there is not a lot of liquidity or trading volume in some of these stocks which creates a need for market makers to step in and create an environment in order to draw in a crowd and make something happen. Just like a Vegas bookie, these market makers compete with one another to buy or sell stocks to investors with their displayed bids and offers, profiting by taking the order and by taking advantage of the bid and ask spreads.
Just like bookies, some are slightly more legit than many others are that you will see regularly when playing hot stocks.
Why Are Market Makers Important?
Like it or not, your fate is in the hands of market makers since they essentially control the stock market. Your order placed to buy or sell a stock on the OTC Markets will usually pass through one of the more trusted sources like NITE, ATDF, ETRF, and ARCA. Seeing a level 2 screen which only has these on it is what’s referred to as a “Clean Level 2” – one with no dirty hands on it. Typically, these four are there to do what markets makers are supposed to do which is simply fill buy & sell orders without attempting to manipulate the behaviour pattern of a particular stock.
When I see these four market makers on a level 2 screen, usually I will investigate the orders that have recently gone through to see if they were sells or buys in an effort to gauge the psychology of those involved already with the stock. Since there is a high probability these trades are being done by traders and not the market makers until given some reason to see otherwise, it gives some clearer insight as to an expected direction/momentum for stock on a given day.
Given what’s been said so far, don’t put it past these four to play games and try to manipulate a stock. One of the signs is when you see a particular one on the top of the bid and ask with a spread wide enough to provide for them to scalp some profits in between. Regardless, these four are much less harmless than when you start getting into the “B” and “V” groups that can take something like that sounds all good and yet every bid posted gets whacked as fast as every ask order gets hit.
Market Makers To Watch Out For:
|Alternative Execution Group||AEXG|
|Maxim Group LLC||MAXM|
|Puma Capital, LLC||PUMA||⚠|
|Vandham Securities Corp.||VNDM||⚠|
|Vfinance Investments, Inc||VFIN||⚠|
|The Vertical Trading Group, LLC||VERT||⚠|
|Buckman, Buckman & Reid, Inc.||BKRT||⚠|
|GMP Securities, LLC||MITR|
|INTL FCSTONE FINANCIAL INC||INTL|
|R. F. Lafferty & Co., Inc.||LAFC|
|Ascendiant Capital Markets, LLC||ASCM|
|Delaney Equity Group LLC||DLNY|
|Wall Street Access||WABR|
|Spartan Securities Group, Ltd.||MICA|
|Biltmore International Corporation||BMIC|
|Wilson-Davis & Co., Inc.||WDCO|
|DINOSAUR FINANCIAL GROUP, L.L.C||DINO|
|D.A. Davidson & Co.||DADA|
|Keefe, Bruyette & Woods, Inc.||KBWI|
|Tradition Asiel Securities Inc.||TRAS|
|Raymond James & Associates, Inc.||RAJA|
|MONROE FINANCIAL PARTNERS, INC.||MONR|
|Fig Partners, LLC||BNKS|
|T.R. Winston & Company, LLC||TRWN|
|Stockcross Financial Services, Inc.||STXG|
|Rafferty Capital Markets, LLC||RAFF|
|Stifel, Nicolaus & Company, Incorporated||STFL|
|Wedbush Securities Inc.||WEDB|
|Glendale Securities, Inc.||GLED|
|Alpine Securities Corporation||ALPS|
|CRT Capital Group LLC||CRTC|
The list above is based on order of recent activity with AEXG being the most active in transactions and CRTC the least active. The “Three C’s”: Citadel Securities (CDEL), Canaccord Genuity (CSTI) and Cantor Fitzgerald (CANT) are almost always on a ticker together with the four more trusted sources mentioned above. While these “Three C’s” are rarely toxic diluters, they can be heavy short sellers at times, taking advantage of a good thing which is part of the game.
Of the highlighted ones listed towards the top of the table, what you will experience most always when trying to battle with them is that when these diluting market makers appear, they will usually show 10,000 shares for trade. Countless “Ask Slaps” at that 10,000 do nothing as the count remains 10,000 due to a very deep well of securities to sell. Others listed lower like WDCO, STXG and GLED are brokerage houses which will take share certificates and clear them for low level toxic diluters (those who cut a deal with a company to buy some shares on the cheap).
Of all those listed, PUMA is one which can make you pull your hair out more often than not. A lot of times you will see PUMA on the high bid and rarely, if ever, on the ask. Then, there are times where you will see PUMA boxed in (on the high bid and the high ask) with a wide enough spread to “scalp” the in between as well as scare investors into selling to them on the bid.
What PUMA will be looking to accomplish is one of two things: either accumulating ahead of an anticipated public event, or a short covering before a possible move to the upside. Either way, this battle can last weeks and makes seeing them atop the bid/ask of a ticker one you will only want to enter into if it’s understood you could be there for awhile.
Contrary to popular opinion, market makers don’t really have a license to print money like many try to insinuate. They get their $1,000,000 fines every other year from the SEC for jumping bids although they are required to buy and sell at bid and ask prices. Despite having the ability to hedge by short selling and swap agreements (which come across the screen as T-Trades or show “avg.” after it), both of which many individual investors see as “market manipulation,” they create the market for the little or no trading volume stocks.