How do the MMs manipulate prices?
What are they manipulating prices with?
Do they have a block of shares that they can sell at any price they want?
What advantage is it to them to manipulate prices (up or down)?

It is my understanding that they do what is called NAKED SHORTING.

NAKED SHORTING - Selling shares they do not possess, and can not get unless they but them back from the market.

This practice can pretty much put a VIRTUAL TOP on any stock.

Imagine an UNLIMITED sell order placed at .03 on WiDGeT you favorite stock. You bought in at .025 now every time it tries to move past .03 it bumps into an UNLIMITED sell order. This TOP is from the NAKED SHORTING.

Eventually the price drops back down to .02 then the MM's put in BUY orders to COVER all of the stock that they SOLD SHORT.

As a result of this practice. Companies shares are not selling for what the true (INVESTING PUBLIC) supply and demand is.

I hope this helps.

This is my understanding on what the problem is. There are others here who understand this far better than I do.

PAUL

quote:

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Originally posted by need4speed:
Sorry if it's stupid but I'm trying to learn.

How do the MMs manipulate prices?
What are they manipulating prices with?
Do they have a block of shares that they can sell at any price they want?
What advantage is it to them to manipulate prices (up or down)?

Thanks

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But godliness with contentment is great gain.
For we brought nothing into this world, and it is certain we can carry nothing out.

But if MMs are using "virtual shares" to set a top price for a stock, what happens to people who buy at this top price if the MMs can't buy back enough shares to cover their sell orders?

Or does this not happen?
And is this what 2-20 is addressing?

In reality the TOP moves around.

2-20 YES it is.

However, many people think it is a paper tiger. Not really going to solve problems.

The concept of MM's does not bother me. Their purpose is to make sure there is always a market for the stock. This way when you want in, you can get in. When you want out, you can get out. That is why MM's always have a BID and ASK price for the sam stock. Not unlike ANY other business.

If I am trying to make a living selling ROCKS then I will publish to my suppliers what I want to pay for rocks. I will publish to all that want to buy, what I am willing to sell my rocks for.

Then at any time, anyone, can walk into my "market" and sell or buy as they desire. (at my prices). Nothing wrong with this in my opinion.

With out this, I may go to the "marketplace" with a basket of rocks and find Hey! no one wants to buy rocks today! That aint good, I need to buy some corn to eat tonight. OR I go to the "marketplace" and NEED some rocks for my sheep that are getting eaten by wild dogs. Oh! no there is noone here to sell me rocks today, that aint good.

OK the solution..... The Market Maker. I am glad he is there.

He just needs to stop selling so many rocks he has not bought yet. Note I say SO MANY. There are times when someone may come to the "marketplace" NEEDING the rocks that the MM does not have. What is to be done... The MM selss the rocks knowing he will buy some late today and then he will deliver them to the buyer.

The system is NOT ALL BAD.

It just needs some refining.

PAUL