I don’t claim to know everything about the Big Broker Prop Desks and the Big Money Funds and how they operate…only the privileged insiders know the whole scoop! And I have never been one of them (thankfully!)…
that disgruntled Goldman Sachs (GS) employee who complained about GS putting profits
ahead of its customers??? Well, I didn’t bat an eye when I heard
that—I thought that was common knowledge! Well, then again, maybe not as much as I thought!
Anyhow, here in the
US, most of the trading shenanigans that go on with “DA BOYZ” is well
hidden from the public, but when I studied some popular overseas stocks
that our US Brokers have an investment in, I learned a lot about their
little games, because in many foreign markets, the likes of the BIG BROKER Prop Desk Traders and Hedge Fund Groups have to disclose their positions, both long and short and how they
trade those positions…this is especially so in Australia….
unbelievable the games they play! For example, when a Prop Desk Broker has “inside control” of a stock, say to the tune of millions
of shares owned by them, they can make a market in that stock
themselves, above and beyond the Market Maker (MM). The MM is really a
functional broker at the point of sale to keep things flowing
smoothly–NITE is probably the most well known MM, though there are
about 8 other outfits…
However, the real shenanigans often take
place with these large brokers or large hedge funds that have control of a
large inventory of shares in any particular stock or ETF–you can see what they do almost day to day in a stock that they control millions of shares in! ….they can be
both long and short in the same issue, playing the ball up and down on
the bounce as they scratch out victory after victory over smaller
traders….and they have honed it down to a science with their High Frequency Trade
They might own 2 million shares of, say Billiton (BHP), some of which might be in individual accounts that they manage , and they might loan out, say 100,000 shares to a shorter –also while helping to play the trade against their own book or possibly their customers accounts that are long the stock, that also collect interest on the margin loans that they make.
It’s a game where they make money on both sides of the trade, so long as they control the price movement, which they often do. I guess I have said enough…before I say too much, right?