i'm very puzzled by the thing called "market makers" and would like to ask for some enlightenment. anyone here who used to work as a MM?
1) it's said that market makers are there to provide liquidity. is it correct? is providing liquidity their only job?
2) are market makers allowed to make money? there's a big difference between "they are allowed to make money if an opportunity presents itself" and "they are trying to make money WHENEVER possible"...
3) how can i tell if a bid-offer spread is put there by the market makers or natually by different bidders and sellers? i mean it's easy to tell when you can't find bid-offer prices---you just call your broker and request a quote--that quote must come from a market maker; but when you see a spread with bid-offer prices and with a very small open interest, for example 5, how can you tell?
4) do market makers do trades with other market makers? Will a market maker be able to tell(using their proprietary software) if a trade comes from another market maker or a private trader?
any help would be greatly appreciated,