The use of models and algorithms is in an effort to not get caught on the wrong side of a big move, the technical term for this is adverse selection, more colloquially “getting lifted”. If someone is coming through with a massive order and you fail to anticipate this and cancel in time, you’ve effectively subsidized a block trader. Market makers want to participate on both sides picking up a small fee (typically one tick) for providing liquidity in a market that is seeing price action in both directions. They don’t want to get run over by agency execution people trying to lay off 21 billion in Tesla stock.
The common misconception is that in order to sell you a share of AAPL, the market maker first buys it cheaper and then sells it to you in some unfair way. There isn’t time for that: they already had inventory.
The common misconception is that in order to sell you a share of AAPL, the market maker first buys it cheaper and then sells it to you in some unfair way. There isn’t time for that: they already had inventory.