Tuesday, November 20, 2007

Operators

Operators: Friend or Foe?

Have you ever wonder, When u place an order with the stockbroker and within seconds it is executed, how this is possible.?

This is where the Operator uncle comes in!!..yes heard right Operators. They cannot be avoided, but if you know how they work, you can watch them buying and selling in the market.

The Operator is like a wholesaler. Customers come and go all day long, some selling stocks, others with new purchases from 10.00 am until 3.30 pm every trading day . The difference is that this wholesaler has only one item to trade. These items are continually bought and sold. The only responsibility that the wholesaler has, it that he must keep his doors open during market hours, and he is responsible for setting the prices, second by second and hour by hour. He makes his money by buying stock at a lower price and selling at a higher price. He makes his money on the difference between the two, which is his profit. This may be few Rupees or in paises, but when you are dealing in lakhs of shares it is a vast amount of money.

what happens when a customer comes in for a large buy order (Block/Bulk Deal)?
if there are insufficient goods (or stocks) available. A normal wholesaler in the real business would buy in more goods from the manufacturer to fulfill the order.

Our Operator Uncle does not have this option, so he has to encourage people to sell to him, otherwise he will have nothing to offer his Big customers. So what does he do? He moves his prices down side,i.e.yes at Lower circuit.!!

It also explains why markets fall faster than they rise - in the fall the wholesaler is in a hurry to get new supplies of goods, on the way back up he is taking his time making profits. This technique is known as 'shaking the tree'.

The Operator is of course the market maker. They are professional traders who buy and sell. Some are large international banking organizations, some household names, others you will never hear of.

As professional traders they sit in the middle of the market, looking at both sides of the market. They will know precisely the balance of supply and demand at any point of time.

They also have the unique advantage of being able to set their prices accordingly.

They use every piece of news, world event, rumour and gossip to manipulate prices and the markets, there is one piece of information that they cannot hide.i.e Volume. It shows the activity of operators during the particular time period, that’s why you should not take Volume lightly!

(article has been Re-edited by me,Thanks and Excerpts/article courtesy to the writer Anna @ making-bread.co.uk)
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