Most traders don’t realize just how much market makers influence price action. These firms aren’t just there to facilitate trades — they actively control bid/ask prices to maximize their own profits.
If you’re trading options or low-volume stocks, understanding their tactics is the only way to avoid getting taken advantage of.
The Spread: Where Market Makers Make Their Money
Market makers profit from the bid-ask spread. If you buy at the ask and sell at the bid, they pocket the difference. But they don’t just sit back and let the market set those prices…
They manipulate them.
When liquidity is low or when they see a flood of market orders, market makers can widen the spread, forcing traders to pay more to get in and accept less to get out.
This is especially dangerous in options trading, where spreads can be massive, turning what looks like a winning trade into a loser just on execution alone.
They also engage in stop-loss hunting.
Since they can see where large stop-loss orders are placed, they sometimes push the price just far enough to trigger those orders. Once those stops are hit, the price often snaps back in the opposite direction — leaving retail traders frustrated while market makers profit.
How to Protect Yourself
As discussed in detail recently, the best way to fight back is to stop using market orders, especially in illiquid stocks and options. Instead, use limit orders to control your entry and exit points.
Market makers can’t manipulate you into buying or selling at an inflated price if you set the terms of the trade yourself.
Another key move is to place stops strategically.
Instead of putting them at obvious support or resistance levels, use mental stops or alerts to manually exit when necessary. This keeps market makers from exploiting predictable stop-loss placements.
Market makers have an edge, but that doesn’t mean you have to hand them your money. By being smarter with your order execution, you can minimize their ability to take advantage of your trades.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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