Market Maker Schemes
Market makers routinely hide large volumes of shares and use hidden orders as a cover up. They do this to unload small orders which allow them to pick up larger orders, by doing so they will not draw unwanted attention from other traders.
Market makers can also intimidate traders by using large fake orders. They use the code word NITBB that means no intention to buy bid, and NITSO which stands for no intention to sell offer. Market makers use these to drop the stock down by scaring traders and trying to influence them to think the stock is actually going down.
When the market maker gets the price low enough where he is comfortable, he can then buy at the lowest price.
Market makers sometimes use fake identities on an ECN, or electronic communication network. This allows the market maker to work the inside market by using multiple identities. ECN’s can ultimately be used by anyone, so this is a good way for market makers to effectively hide their true identity and to pick up larger orders.
Market makers occasionally team up with other market makers to trade between themselves, which scares others who are not market makers or who don’t know a lot about penny stocks to sort of trick them into selling for a low price.
The “Ax”
Some market makers can also be referred to as “Ax,” which is a code word that means that market maker has the biggest control over that particular stocks trading. Market makers become an ax by trying to increase the bid, and negatively controlling the movement of the stock by bringing the bid and price share down.
The ax occasionally also tries to price trade sideways or keep the bid around the same price. The ax isn’t always around as they flip flop between certain stocks, but it’s good to keep an eye out for unusual trades or look at the consistency of the stock you are trading or looking to trade. Once you get more experience with stocks in general, it will be easier to point out whom the ax is and how they are controlling that particular stock. If you don’t have a lot of experience with stocks yet, there are a few ways to find the ax and how they are affecting a certain stock you are trying to trade or sell, or one that you may be interested in:
Obtain the monthly share report for the particular stock in question. This should provide you with sufficient information about a particular stock, which will allow you to track down the ax.
When sifting through the share report, look at the top five spots, and ignore the ECN’s. You should ignore the ECN’s when going through the share reports because they are often used to buy and sell shares by others and have little effect on that stock.
Sometimes it can be beneficial to have a lot of market makers involved in a given stock. The more market makers involved, the more likely they are to bid against each other, which in turn can drive the price down below market price or keep the stock around the true market price.
Facts about ECN’s:
ECN is a term in the financial world that has to do with a computer system that is used for trading financial products not in stock exchanges, but stocks are the most traded on ECN’s, but other currencies can be traded with ECN’s as well.
ECN’s can be used to increase competition between firms by keeping transaction costs down.
To use an ECN, you must subscribe or have an account with specific software. Usually the buyer and seller remain anonymous within the system.
There are some ECN brokers that have more advanced features to use like negotiation and pegging.
Electronic Negotiations
ECN’s are usually electronic negotiation, which is a type of communication between agents where cooperative and competitive sharing of information is used to determine a proper price range.
Some negotiations that occur frequently, usually one right after another sometimes several per minute for schedule network capacity, or negotiating methods can use autonomous agents for coordination.
Automated negotiation is a form of interaction in some systems composed of autonomous agents. During the negotiation process, each offer has its own utility and expectation of what other agents do. Using a multi-criteria decision-making is a crucial need to be taken for each offer.
Overall, it helps to do your homework or gain experience when dealing with any stocks, even penny stocks. Not all market makers are in business to rip others off, but one must be aware that some are. You can trust a lot of market makers as they have the experience to be successful in any stock market. They know how to effectively manage money, and that can be beneficial to you in determining if some penny stocks are worth the time and the price.
In the Business of Making Money
Market makers are in the business to make money just like you, and they may go to great lengths to accomplish that. Some may use their expertise against you, but keep building your experience level within stocks so you can point these facts out as they come along.
Be aware of the signals that market makers use when observing stocks that peak your interest. Also, be aware of ECN’s and the fact that some market makers may use different identities to control the costs of certain stocks so that it can work out more in their favor.
The ECN facts above will help you in judging market makers on an ECN network to find out if they are using tricks or false identities to meet their agenda. Also, watch out for the ax type market maker. The ax isn’t always present, but remembering how to find the ax, can benefit you on certain stocks that may be of interest to you.
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