InvestorsHub Logo

Toxic Avenger

07/07/10 10:20 AM

#141525 RE: LostTexan #141516

You have to understand that the OTC is not a "market". It's a quote and trade reporting service. MMs are not obligated to do anything. They can sell or buy your stock at whatever price you and they are willing to execute, regardless of the current bid or ask displayed.
There can be a bid of $10 and you can put in a sell of $1 and they don't have to execute the trade. The only real prohibitions are trading ahead of customers and market manipulation.
Now, that said, most market makers want to maximize their profits of course. So they sell at the highest price and buy at the lowest generally.
Most trades are both a buy and a sell, though MMs certainly do hold inventory and go short for a little while if they believe they can cover quickly at a lower price. Each trade is both a buy and a sell. The conventional wisdom is that a trade at the bid or closer to the bid than the ask is a "sell", as the seller dropped his/her price to meet what the buyer was willing to pay. Similarly a trade closer to the ask is a "buy" as the buyer moved his/her price up.
What MMs can't do is "trade ahead" of their customers, which is why your buy above the ask gets filled at a lower price (in this case the bid). That means the MM can't sell you shares at X, then buy those shares from another seller for less than X to make a profit. If they execute your order, it has to be at the best price (i.e. highest sale or lowest buy) available at that time. As mentioned earlier though, they do not have to execute your order.