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Rant & Rave Blog

Reminiscences of a Wall Street Market Maker

Posted by Thursday, February 12, 2009, 07:00PM ET

Read 1123 times

Reminiscences of a Wall Street Market MakerIt all began on a brutally cold February day in 1993. I had interviewed multiple times at a small firm and finally got word from the head of the company, I was hired. At the time the word market maker or bid/ask were as foreign to me as German, French or Spanish. However, being hired on Wall Street meant money and clout. I could barely contain my excitement.

It is important to remember that this was a time when things were very different. Wall Street was a club of the elite. There were no computers pushing orders through using ECN's. It was big boys ruling the small. I did not have to know one thing on technical analysis or fundamental analysis, I just had understand my level II and have connections.

Certain market makers had reputations. What I mean by this is that market maker XYZ would be known for being long stocks and market maker ABC would be known for shorting stocks. As a market maker you would know this and seeing that market maker on the bid or the ask would alert you to the direction that stock was going. The direction of a stock was determined and is determined by the amount of money forcing it in a certain direction. Those market markers would use their hundreds of millions to force a stock in a particular direction.

As I mentioned earlier, being a market maker was an elite club. Most trades back then were done over the phone, not the computer. With the phone came a personal experience and market makers including myself were able to build close relationships with firms. As you talked to these other top players at other firms you would find out key information on whether they were buying 100,000 shares or 1,000,000,000. You would start to understand and connect with them and know whether or not their firms were forcing stocks lower or higher. As a market maker you could position yourself accordingly. As computers have become mainstream in the trading world, that connection is much less prevalent. It is harder to tell whether someone is buying 1,000 shares or 1,000,000,000. Computers allow the ability to hide ones identity, motives, and size.

The firm I started working at was much like any fraternity. Those that were new had to start at the bottom and work their way up. At first my job was doing anything that the veteran traders needed. From answering phones to handling paperwork. A missed phone call meant the firm lost quite possibly thousands of dollars. The phones were always ringing off the hook. The job was grueling, market markers got burnt out and quit left and right or just could not handle the life style and were fired. Succeeding was all about adapting to the craziness and stepping up. The money was there but many could not meet the expectations required.

Very quickly I worked my way up to the assistant to the head trader. Being the assistant meant you were one step away from being an official market maker. Being a market maker was one of the most coveted jobs on Wall Street. If you were a market maker you had control of the firms money. This meant hundreds of millions of dollars at your disposal. With the title came huge money if you were able to perform. I was almost there.

As the assistant to the head trader I began to learn all the ins and outs of the job. I started to create and connect on the phone with the guys all over Wall Street. I found that your word was gold. As long as you were trust worthy and kept your word you were taken for it. However, there were certain guys who did not keep their word. That got around on Wall Street as well and soon enough they were outcasts. I stress the idea again of a fraternity or a good old boys club. The day finally came where I got my own box. Getting your own box meant you had the firms capital behind you and you were officially a market maker. I remember it as clearly as if it was yesterday. I walked into the office and made my way to my desk. On the keyboard there was a list of stocks. I looked the stocks over carefully, noting each one. These were the stocks which I would be making a market in. It basically meant that it was up to me whether or not those stocks would go up or down. I had full control. I was extremely happy but very nervous at the same time. This was the big leagues and I was now a pro player.

With this new responsibility came some negatives as well. The days of weekly paychecks were over. Now I was paid purely on performance. Making a market meant you had to be on the bid or the ask of those stocks throughout the day taking profits. If you lost money one month you would not be paid again until you overcame that loss from the previous month. I was paid as a percentage of my total profits. For instance, if my box grew by five-million one month, I would be paid a percentage of that total at the end of the month.

The first few months were mixed for me. I had some great months and some poor months. The key I found was to have the great months far exceed the poor months. Over time I developed my own style of making a market and did very well. My years as a Wall Street market maker taught me many lessons about the market and its underling functionality. The use of the computer for trading purposes has changed the way the markets work mainly by their ability to hide the key players. The fraternity of market makers is much less prevalent at present day though it still exists...

In 2003, I decided that I was going to trade for myself. Since that time I have traded my own money and have done well. In 2007, I had the opportunity to team up with two of the best traders I have ever met, Nicholas Santiago and Gareth Soloway. At that time INTHEMONEYSTOCKS was formed and as they say, the rest is history. The nineties was an exciting time to be a market maker on Wall Street! All the stories and lessons learned can fill numerous books. I hope to bring you more in the near future.

Source: Lou Cardinali,
The Leader In Market Technical Guidance


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