Imagine for a moment you were a market maker, a big boy with millions or billions behind you to move markets you want to move in your favour. What would you do if you have, let's say every day, 10000 futures contracts to place in the Bond markets? How would you play your game to get the best price for 10000 lots?
I think one possibility is excluded: You would not dare to place all 10000 lots at market price or buy - let's assume your intention is to buy and not to sell - all offers to get into the market. It is easy to understand that in this case you would get the worst price because you will absorb all offers until your 10000 lots are filled. The price will soar and you will sit on the highest price for the day causing a liquidity vacuum behind you which will be traded against you. On the other side, there are more then one smart and big guy who is maybe keen to trade against you.
I would like to show that every smart retail trader can and should understand what's happening in the market and how market makers act in order to reach their price targets.
Even better: It can be made visible with programs which were not available some years ago. Only those who traded strictly through an order book and receiving 2nd Level Datas or market depth data for their markets were able to understand what is happening.
Back to the game: What would you do to get the best price for your desired amount of contracts?
1st: You need the best buy price before the price lift off.
2nd: This is in case of buying the lowest price you can get
3rd: You must place your orders in small trunks
4th: You must play an offensive game to bring down the price where you want to buy several times
5th: You must be active on the bid and offer side
Watch this commented video to see where market makers are buying and get the the best price for their initiative.
Following samples are actual and happens every day:
Leave your comment for further discussion.