Quote Originally Posted by adam ali View Post
Fair enough. Would it also be fair to say that we're "seeing" market direction after the fact (analyzing executed volume) whereas HFT MM, thru their algos, try to divine market direction by "testing" for market demand and supply in real-time?

In years past, the guys down on the floor had the book, could see demand and supply, and act accordingly. That sort of look is no longer available - at least not nearly to the same degree - as institutions got smarter about how their traders placed orders.
MMs, and especially the largest ones, have the best big picture about institutional investor’s intentions. They seldom divine and only act on certainty.
Again, you can only really understand this if you've worked in a MM's trading room.
I could give zillions of examples for this, but one will suffice for now. Let's suppose a very large fund wants to start accumulating big positions in many ETFs and stocks. The fund will first call around all MMs houses to ask if they can arrange block trades at a limit price. Let's say $50 for 1,000,000 shares of stock A currently trading at $49.50. If the MM is holding the position in inventory at a lower VWAP he will probably be the counterparty if it fits well with its outsizing plan. If they don't have the stock in inventory, or worst are short the stock, the MMs will instantly call their institutional clients and other MM's to search for a counterparty. If the majority of replies is "No, thank you, could you also arrange to buy a block for me?", you can be sure that the MMs will rush to their buy buttons and will launch their buy programs like mad. And because all MMs have been contacted it quickly turns into snowballing to the upside because they want to accumulate inventories as low as possible before the big flows of orders start coming in.
Billy