In that case, they might be able to keep the price of the stock artificially high for most of the trade by not letting on that the market will soon be flooded with shares. As an example, say a market maker puts out an order to sell 10,000 shares of a stock, but really has 100,000 shares to sell. Market makers can also “trick” the market by releasing an order that’s larger or smaller than the number of shares they really want to buy or sell. Once the order does complete, prices can move sharply to respond to bid and ask prices from across the market for that stock. In this case, the market maker is suppressing or inflating the price of a stock – right up until their large trade is nearly finished. The purpose of this for the market maker is that it allows them to successfully fill a large limit order. This is likely a sign that the market maker is filling a large order, and may artificially keep the bid or ask price consistent for most of the day by only buying or releasing shares at a certain price. One thing traders should pay attention to when trading penny stocks on over-the-counter markets is whether a single market maker is controlling most of the order flow. The ripples that market makers cause to bid and ask prices are real, although they’re generally restricted to penny stocks and micro-caps. Whether or not you believe in market maker signals, market makers can play games with the market in order to increase their own profits. Real Market Maker “Signals” To Pay Attention To There’s relatively little evidence that market maker signals are real. Still, take all of this with a grain of salt. Orders of several hundred shares of penny stocks likely aren’t coming from retail investors. These signals are clear to other market makers because the value of shares being traded is less than the commission required to place the trade.

An order for 300 shares might indicate to other market makers that the stock price should be brought down so that shares can be bought up from frightened sellers. Market makers get around this – so the theory goes – by buying or selling shares of penny and micro-cap stocks in increments of several hundred shares at a time.įor example, an order for 100 shares of a stock might signal to other market makers that the issuer wants to purchase a much larger number of shares of that stock. Instant messaging among market makers about trades queued for execution is prohibited by the SEC to prevent insider trading. Market maker signals are something of an urban legend among traders. Market makers make their money on the spread between bid-ask prices, and can quickly make thousands of dollars from the spread for large trades or for stocks with high trading volumes. Typically, they can buy and sell at least 100 shares in any trade, but share volumes can rise into the tens of thousands for larger trades. Market makers are quoting bid and ask prices and the volumes of stock they’re willing to buy and sell at any given moment.

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