Let me see if I can
Tackle this question without getting my butt chewed.
Whenever anyone buys or sells a stock...it goes through an "MM".
Money Maker, Market Maker...what ever you want to call them. Every MM has a 4 letter abreviation for their name. (google this for L2's and there are many) NITE is the 4 letter Abv. for Knight Capital Group. VNDM is short for Vandham Securities Corp. So all it is, is an abreviation for a company that buys and sells stocks. (actually....the MM was derived from the term "Middle Man".) We all know that the middle man makes all the money.
No matter if you have Ameritrade, E-Trade...or directly through a broker like Merrill Lynch...Your buy or sell goes through an MM.
Say you're with Ameritrade....and put in a buy for 5000 shares of EXBX at .20. They (Ameritrade) put out to the MM pool that they have a client (you) that is willing to buy 5000 shares of EXBX at .20. Then, one of the MM's scrambles to buy stocks from another MM at a price lower than your .20. He finds a guy at e-trade that is willing to sell his EXBX for .18. If they can buy the stock at .18 from another MM and then sell it to you (actually Ameritrade) at .20.....they pocket the .02 profit.
It's that simple. Ameritrade, e-trade...or even Merrill Lynch do not actually buy and sell your stock...they go through an MM. All Ameritrade, etc. makes is the $9.99 per trade you pay...(yeah...yeah...plus another couple of small Fed. fees.).
Now...if the MM borrows them from another MM ....without actually paying for them right now...that is short selling. If the other MM wants them back say 2 weeks later and the price has dropped...the original buyer MM buys them at the current lower price....and that is what he pays the MM he borrows them from..and pockets the difference.
I won't even get into short selling much.....but that is when an MM borrows them....and never intends to pay them back...hoping the company goes bankrupt. This is where the "scruples" of the MM comes into play. MM's have been known to put out false info....etc. The lower they can get the stock price down....the lower they have to buy them back and pay whoever they borrowed them from.
If you are totally confused.....so are 90% of all other investors. I am sure I have left out somethings...but that is pretty much how it works. The MM makes all the money...based on what he can buys shares from you....then sell them at a higher price. Hence...."bid" (what he is willing to buy them "from" you for....and "ask'...which he is willing to sell them "to" you for.
AI
