Page 267 - THE MARKET WHISPERER

THE MARKET WHISPERER 26 3

the market maker for both parties: for buyer and seller simultaneously. In
the case that both a buyer and seller are available on an ECN, this usually
indicates different clients of the same ECN, and in the case of a market
maker for both parties, the market maker is trying to profit from the one
cent spread. One cent, in very large quantities that only market makers
generally see, can end up being a lot of money!

The market depth (that is, the quantity of buyer demand and quantity

of seller supply) is very significant. We see how the buyers (the bid) at
$54.25 spread across three lines which are emphasized with the same
color. Each price layer receives its own color. The total demand quantity at
that level of demand is 2900 shares. Notice how the accepted display form
of quantities is in units representing hundreds. In other words, 14 + 14 + 1
= 29 represents a demand of 2900 shares at $54.25. Demand, in this case,
is divided among three different buyers. On the sellers’ (ask) side, you
can see a relatively smaller supply of 1700 shares at $54.26. The meaning
of larger demand than supply is clear: when there are more buyers than
sellers, there is a good probability that the stock price will rise. On the
other hand, if the surplus demand has caused you to decide to buy, then it

is first worth glancing at the number of sellers found at two cents above
the current supply price. Notice that at $54.28, two sellers are trying to sell
a quantity of 2900 shares. In other words, if you buy the stock and it goes
up only two cents, it may have difficulty in crossing the resistance of the
next batch of sellers. Have you already cancelled your buy order? Or is it
worthwhile buying only if it passes $54.28?

Let’s say that despite the resistance, you are considering buying. Before
that, you must check your escape path. If you check the buyer depth, which
is below the price of $54.25, you will discover that demand is very low. In
other words, if you purchase several thousand shares, you will find great

difficulty in exiting at a reasonable price. The solution may be in buying a
smaller amount, or perhaps not buying at all. On the other hand, if you are
planning to execute a short on the stock and when pressured, may need to

exit the short (that is, buy), you can rely on a large number of sellers from

whom to buy. Every stock has a different tradability, which means you need

to check each one from the point of view of quantity you are willing to risk,

and adapt it to the number of bids and asks as displayed in the Level II

market depth.

Hiding information

Large quantity buyers and sellers tend to hide the real quantities they