How Market makers get your sharesMarket makers may post a
bid and an offer that looks something like this:
This means that they will buy 185000 shares of a stock at $1.34 per share and they will sell 427000 shares of the same stock at $1.35. They are obligated to honor those sizes, but with computers they are able to break the orders up into small lots - iceburgs so it looks like many small orders. The market maker is just trying to purchase the stock at $1.34, and by posting an ask for 427000 shares, he is merely looking to fool investors into thinking that there is big supply of the stock and that it is not moving higher.
So what happens? Many "investors" will simply sell the stock for $1.34 just to get the trade done, thinking the stock is stalled for some time, but in reality, the purpose of posting a big ask was to get an investor to sell his shares @ $1.34. it works (and if we were honest - we would all probably admit to having large asks influence our decision to sell). Investors see this, think that the market maker is looking to unload a big block of stock, and sell their shares at the bid price (which, using the above example, is $1.34). .
Incidentally, the same trick can be used in reverse on the
buy side of the equation. The market maker may show a big offer of say 10,000 shares and a small sell.
The beauty of the TSX is that all of the crooks work together - in other words, the MM does not have to worry about someone taking out the whole 400K shares. Using iceburgs further protects the MM, because if someone bought 50k at the ask, he can pull the rest of his order - or as hppens much of the time, he simply changes the buy orders he has at $1.34 to $1.35 and buys his own stock (through different borkers/accounts of course).