NIFTY Options Trading by RAJ

[healthraj]

Now lets start at primary school: What is a market maker?

Every body can post his/here idea here in case Healthraj doe's not mind about that maybe, but be careful, question?

No issues Dan. To the contrary I welcome so that we can learn..

 

[DanPickUp]

End of the day we are at the Mercy of a Market Maker

Yes, you made it :clapping::clap:

 

[jamit_05]

Now lets start at primary school: What is a market maker?

Every body can post his/here idea here in case Healthraj doe's not mind about that maybe, but be careful, question?

Thanks for the link Raj. It made one thing clear:

To qualify as a MM, NSE requires concrete proof of your deep-pocket (CA's certificate et al). After all, you are required to provide rates on both sides.

One can further infer from reading that link, that NSE has some sort of set rules and a software which has to be followed on the MM's end. This software ensures that the market maker fulfills:

1) His quota of orders on any given day. Diff quotas for diff MMs.
Much like a dealership in any brand. A big dealer of Maruti cars like Sai Service can deal X cars, whereas a smaller one like FortPoint can deal only in X-n.

2) The floor and ceiling of the rates he is supposed to quote depending on the volatility. In this lies the MM profit also.

3) Special or no expenses of brokerage, STT, Turnover or stamp duty

So MMs indeed make the market for the others to participate. Hunger-Games eh!

This set of rules are ironclad into the SME platform that NSE requires the MM to trade from. Therefore, the risk of MM is always defined and well under control.

 

[DanPickUp]

Thanks for the link Raj. It made one thing clear:

To qualify as a MM, NSE requires concrete proof of your deep-pocket (CA's certificate et al). After all, you are required to provide rates on both sides.

One can further infer from reading that link, that NSE has some sort of set rules and a software which has to be followed on the MM's end. This software ensures that the market maker fulfills:

1) His quota of orders on any given day. Diff quotas for diff MMs.
Much like a dealership in any brand. A big dealer of Maruti cars like Sai Service can deal X cars, whereas a smaller one like FortPoint can deal only in X-n.

2) The floor and ceiling of the rates he is supposed to quote depending on the volatility. In this lies the MM profit also.

3) Special or no expenses of brokerage, STT, Turnover or stamp duty

So MMs indeed make the market for the others to participate. Hunger-Games eh!

This set of rules are ironclad into the SME platform that NSE requires the MM to trade from. Therefore, the risk of MM is always defined and well under control.

Did you ever think about that YOU can be a market maker in any market you want, only if you know how to do it?

Just giving a clue and no more

Take care and all the best / DanPickUp

 

[healthraj]

For Today 13-Aug-13...

The NF 5595 is acting the Pivot for the last three days.... Today it is a STRONG BULL, so you can expect at least 60 points from 5595 which is 5655.

We can actually expect more that 5655 for Today but for that 5700 needs a change. For the moment 5700 is looking Bearish. So Close your Longs accordingly.

 

[jamit_05]

One obvious rule which is often broken by the Market Maker is that "Market Maker does not always provide the Bid/ Ask as per the Real Supply Demand". They take the stock to a Level which is called the Support or Resistance, which is decided by the Market Maker?

So now my basic question, is why should Market Maker decide the Support or Resistance area? They just need to supply for the demand ....

Well, I do not think they have the liberty to get into any sort of speculation. They purely supply to the demand, like you rightly said. Speculation is done by other agencies: FII, DII, props etc.

If MMs don't do their jobs, then NSE must have some rule to end their licence. How else will NSE ensure the integrity of its brand... NSE! (look what happened to MCX.. brand gone all gone!)

The second question is that why would the stock fall suddenly or go up suddenly (GAP UP or GAP DOWN)? The Market Makers if they want can control this. In other words Market makers are wantedly creating this panic situation... All because they want to decide (or have already decided) which way the Stock or Market should go, which is not the function of a Market Maker. But unfortunately there are no rules which can govern this...

End of the day we are at the Mercy of a Market Maker

MM job is only to follow the volatility and provide the price for the instrument they are responsible for. If someone dumps a large load of Infy, then MM's job is to simply buy x lots every y secs... and if volatility increases then the spread of buy and sell increases giving him more money. All controlled by software. Just like any other dealership. I do not expect a dealership of a popular brand, like HuL, will be allowed under any circumstances to affect the company pricing. I know of big dealers losing their licences and deposits overnight due to malpractice. To a large company its brand value is most important!

If MM started speculating just like everybody else, then it would be a frequent sight in Nifty 50 where there are only sellers and only buyers... but that does not happen.

These are my conjectures and are 100% debatable.

 

[Option.Trader]

Its very important for traders to understand that FII's almost always trigger a medium term trend reversal.

Look at the statistics over here

In January 2008, they were the first to sell which triggered the biggest bear market in a decade.(while the DII's foolishly continued to buy)

In April & May 2009, they were the first to buy which triggered a massive bull run (while the DII's were actually net sellers)

In Dec 2010, Jan 2011 and Fed 2011 they were massive sellers triggering an intermediate term downtrend (as usual DII's were stupidly buying)

In Jan and Feb 2012, they were huge buyers again triggering a minor uptrend. (while DII's were as usual silly and selling)

But there is another deeper point here for anyone observing with some intellect. If the FII and DII bought simultaneously the markets would basically hit the upper circuit as we are not liquid enough to absorb such buying similarly,

If the FII and DII sold simultaneously we would continuously hit the lower circuit as we our markets are not liquid enough to absorb such selling.

The client and proprietary traders in India are not big enough to counteract the combined buying/selling of the FII's and DII's.


Once you understand this, its not difficult to understand why the FII and DII always take opposing positions and try to balance our markets to the state it is in currently.

All that said, Currently FII's are net sellers to neutral in the Indian markets. Without their participation, its impossible to be in an intermediate term uptrend.

This is too simplistic an explanation. DII's also are privy to data that we have... and they do know that FII's come with deep pockets... so if FII's are continuously buying up, are DII's mandated to sell by the bourses to maintain balance? why would they want to be net sellers in a trending up market? But i agree that this has been the situation.. just wondering if DII's are mandated to play the reversal role

 

[healthraj]

Closed the 5500-5700 Pair with 5 points because it is showing a Strong Trend today. We can trade another pair again EOD today.

 

[DanPickUp]

This is too simplistic an explanation. DII's also are privy to data that we have... and they do know that FII's come with deep pockets... so if FII's are continuously buying up, are DII's mandated to sell by the bourses to maintain balance? why would they want to be net sellers in a trending up market? But i agree that this has been the situation.. just wondering if DII's are mandated to play the reversal role

Post the prove of what you posted and that's it.

 

[DanPickUp]

Did you ever think about that YOU can be a market maker in any market you want, only if you know how to do it?

Just giving a clue and no more

Take care and all the best / DanPickUp

Sorry, forget for a moment that we post about India market here. Sorry, no more comments about that from my side.