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the market maker method
Fink Money
July 31, 2025
We’ve all seen these fellas on YouTube and on X.
The types who draw nice lines to explain how MaRkEt MaKeRs are controlling the markets with liquidity pools and funny acronyms about shit that doesn’t even make one iota of sense if you have a half clue about market participants.
Fellas like this.
And this.
And this.
And this…
I think you get the picture…
But the only thing you need to know is that this is all complete BOLLOCKS, and is a marketing technique to get you to buy their course (we sell an Academy, we just don’t pretend there is a holy grail super secret method that You Don’t Know About with regards to day trading which is largely impossible these days — more on this later).
If you were to ask them what risk premium harvesting is (effectively how you make money in markets), they would look at you blank eyed like a Xanax’d up sloth.
For those that don’t understand what a market maker is, they provide two sided quotes to markets and make money off a spread.
I.e, they will quote both a bid and offer and tighten (quote a lesser spread) if they feel they have more information about an asset, which should really drive more flow to that individual market maker, meaning more revenue from the spread (traders want the cheapest cost of trading, simple price signals!).
These idiots act like market makers rule everything, that they work almost together as one (in fact they are competing AGAINST each other for flow) and that there are no risks involved.
Well let me tell you something — any market maker I know wants to get rid of any lopsided book as fast as possible. They don’t want to hold ‘inventory’, since ‘inventory’ presupposes them to market risks and they want to be DELTA NEUTRAL (i.e they don’t really care which way the market goes, they just want to provide liquidity*).
*They will still have a view and might hold if they spot the adequate conditions to offload inventory at a better price, but generally they want to have a flat book at the end of the day.
If we return back to the market making risks for a sec, I can provide some backing for this view.
We’ll start with this part.
We find that: 1) HFTs in aggregate make most of their largest dollar profits from Opportunistic traders, 2) on a per-contract basis, Fundamental traders incur the least cost to HFTs, while Small traders incur the most, 3) interestingly, Aggressive HFTs make a large fraction of their profits from Mixed and Passive HFTs, and 4) the effective HFT transaction cost on non-HFT trades is approximately 0.22 basis points.
That 1) is key.
Market makers these days have become more and more HFT (high frequency trading) focused.
Some HFTs are aggressive (liquidity takers i.e not market makers) and some are passive (high frequency market makers, or liquidity providers) and some are considered mixed, (do both market making AND liquidity taking).
What’s key here though is that HFTs generally make money from opportunistic traders…
Which, ironically, is EXACTLY WHAT THE C*NTS IN THE INTRODUCTION ARE.
So while they’re selling you a ‘market maker model’, some HFTs who also do market making are absolutely cleaning up on their flow (if it at all hits the market because it’s more likely their broker just internalises the risk and waits for them to lose).
Fundamental traders on the other hand (those with longer holding periods) are not profitable really for these guys. That’s why we focus on this and NOT short term day trading nonsense that everyone knows leaves you pulling your hair out.
Panel A shows that Aggressive and Mixed HFTs make positive profits from all other types of traders, while Passive HFTs make positive profits from all other types of traders except from fundamental traders. In particular, Aggressive HFTs make about 45% of their profits (= (7,190,140 + 2,557,038) / 21,952,215 = 44.4%) from adversely selecting the other HFT subtypes. Panel A shows that all types of HFTs make the majority of their dollar profits from opportunistic traders. Panel B describes the profits and losses on a per contract basis. These results provide an estimate of the effective transaction costs involved in trading with certain groups. Since we compute profits on a 1 minute basis while resetting each trader’s inventory to zero, their profits can be interpreted as short-term transaction costs extracted from the rest of the market, not gains from long-term directional positions.
The below table shows you which participant makes money from the other.
Note - when paired against any counterparty, small traders are considered net losers.
Bear that in mind when someone shows you a 1 or 5 minute chart next time (this study is done over 1 minute time intervals since these are the timeframes HFTs operate over).
Oh, and further to compound these w*ankers’ bullshit, this study was done over a decade ago, and these algorithms and technological capabilities have just gotten more advanced.
Do you understand where I am coming from now?
The reason why we say in one of the first videos in the Academy is to stop competing in arenas where you have no business doing so is for exactly this reason.
To conclude this, I’m just going to quote from the conclusion.
Recent theoretical papers have highlighted concerns of faster traders adversely selecting slower traders and competition on speed leading to socially inefficient arms races for speed. Our results suggest that HFTs have strong incentives to take liquidity and compete over small increases in speed in an industry dominated by a small number of incumbents earning high and persistent returns.
They are competing on speed and tech.
If you’re trading on a 5 minute chart, or see anyone that is, send them this piece.
Because they are basically turning up to play golf at Carnoustie.
With prime Tiger Woods, Mickelson and Niklaus on the roster.
With a strapon as a golf club.
And are blind.
And r***rded.
Anyway, if you want to trade like a HFT, why not just buy the shares of a f*cking HFT and stop doing stupid shit all the time?
Here’s Virtu, literally a listed HFT market maker and aggressor.
