This is a valid opinion,
Market Makers have privileges to be naked and uncovered for taking the trades on eithers side of an order. They can then use their own cost analysis and risk management formulas to hedge or remain ‘delta neutral’.
Market Makers get the keys to the castle to provide liquidity by executing buys and sells without a match on the other side. They do this to maximize trade -in tandem with trade volume. The alleged argument that more trades means better price and price discovery, seems to be the bad batch propaganda to facilitate their sanctioned market maker privilege practices.
Here’s a Forex take on Liquidity Providers (LPs);
Yea, if they can ‘stabilize the market’ by providing buying OR selling pressure, then they can control the price swings. The Liquidity providers have the power to eat up trades and direct either a buying or selling pressure, meaning they can influence price, resulting in price fixing.
So the problem is
that this would be artificial liquidity.
If the Market Maker consume more buys then sells, then you’d be on the hook to buy more than you sold.
Like wise, if a Market Maker sold more than they buy, then they’d be on the hook to deliver more than they’d get.
Assuming of course, no float nor inventory in this simple analysis. Which Market Makers have capital to back up their decisions, and they also have enough Capital + Privileges that they can strong arm the price in a specific direction. Consider the inventory of available stock or shares to be equivalent to a ‘buffer’ or ‘weighted anchor’ to leverage the underlying price on a fulcrum. I digress.
This is artificial liquidity, because you’re not providing buyers and sellers with eachother. The orders are not being fulfilled between buyers and sellers.
Instead, the market maker is just trading with each buyer and each seller.
Instead of providing the market, the Market Makers becomes it (the Market).
Thus the artificial liquidity can lead to an altered share price that would be the wrong price ‘discovered’. There is no price discovery in the conventional sense. Since the Supply and Demand of the market isn’t followed when one side of the supply (Sellers) or the demand (Buyers) isn’t reflected in the overall outcome.
The definition of Market Manipulation varies, one definition is price fixing. -And allowing special privileges for Market Makers to ‘make’ the market allows for them to asymmetrically rig the markets and fix the price. Diverting and allocating specific buy or sell pressures to manipulate the price of the underlying.
So providing liquidity is providing artificial liquidity, trading direct to buyers and sellers, resulting in a fake price.
The Market Maker then becomes a de facto Casino, and you’re betting against the house when you buy and sell.
The Odds of a Casino, always favor the house.
You Can’t run a Casino without any Guests.
*Not Valid Financial, Legal, Life, or Any Advice